USD/JPY: A rise beyond PPP+20%

During the August holiday period, USD/JPY has lost upside momentum on factors such as below-forecast US employment data. After reaching 103.74 on 22 May, it has lost traction at around 95-100. However, we still see US GDP growth for 2H at over 3%, and continue to look for USD/JPY to rise above 100.

In the Abe market, USD/JPY rose 25-30% at one stage from 75-80 during 2011-12. Typical cyclical movement is within our PPP±20% range (see figure below), and the ceiling for this range is currently 105. Can USD/JPY rise beyond this, and what reasoning could underpin such a move?

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Deutsche Bank

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