Economists at CIBC Capital Markets discuss USD/JPY outlook. 

Wages are the key

Although we remain biased towards USD/JPY downside, investors continue to wait on an obvious catalyst.

Rising corporate profitability provides scope to fund recently agreed-to high wage deals.

We expect rising wage dynamics to impact the BoJ CPI forecasts in the July policy report and for CPI forecast adjustments to be a catalyst for potential policy (YCC) tweaks. That should support 10-year spread compression and buttress our call for downside in USD/JPY in H2 and beyond.