USD/JPY to suffer a drop to 113.00 before resuming its advance – ING

USD/JPY has climbed to its strongest level in a week above 114.00. But economists at ING expect the yen to stay supported on unstable risk sentiment, pushing the pair towards 113.00 in the short-term.

Room for a short-term short-squeeze

“Despite not having a supportive seasonal trend around Christmas, we think that the risks are skewed to the upside for the yen in the next two weeks as the Omicron situation looks likely to get worse before getting better.”

“We think we could see some short-term weakness in JPY, which may pull back below 113.00.”

“Still, we expect any JPY strength to prove temporary as the Fed tapering and tightening should put upward pressure on UST yields and energy prices should stay elevated.”