NAB FX Strategy Research outlines 3 scenario analysis into its USD/JPY model that estimates fair value (fv) targets based on movements in 10y USTs, gold and the Nikkei. 

1- “Leaving gold and the Nikkei unchanged and 10y UST at 2.75% (our end year forecast) sees USD/JPY rising to ¥119.

2- An extreme risk off scenario with 10y USTs at 2.75% and gold and Nikkei back to their ranges high and low respectively ($1300 gold, 18420 Nikkei) takes USD/JPY to ¥114.25.

3- Conversely a risk on scenario with 10y UST at 2.75%, gold at $1200 and Nikkei making new highs suggest USD/JPY trades comfortably above ¥120,” NAB notes.

All-in, NAB sees the pair contained around a ¥114-¥116 range over the coming months before rallying to 118 by year-end. 

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