USDJPY ended 2020 at close to 103 and is currently trading above 155. The main driver of USDJPY during this period has been the Fed's monetary policy tightening cycle, as USDJPY is the developed market pair with the highest correlation to interest rate differentials. Going forward, we see room for US Treasury yields to fall from current levels, while for Japanese rates, we foresee JGB 10Y yields gradually rising to 2% as a result of two important drivers: i) we see the BoJ key policy rate trending to 1% throughout 2025, while based on a Japan neutral real interest rate estimate of -0.5%, the policy rate could eventually converge to 1.5%; ii) we think that the BoJ will taper Japan’s debt purchases very gradually in the coming quarters, which should help steepen Japan's yield curve. As such, due to the expected narrowing of yield spreads over the next few years, we believe that going long the JPY against the USD with a medium-term perspective could offer some attractive upside. In addition, long JPY positions would be a good hedge in a portfolio against an unexpected recession in the US.