USD/JPY keeps erasing intervention losses as macro backdrop remains skewed to the upside

FUNDAMENTAL OVERVIEW

USD:

The US dollar extended the gains across the board as markets are starting to grow impatient amid the prolonged US-Iran stalemate and Strait of Hormuz closure. Treasury yields came into the spotlight on Friday as they broke March highs on increasing inflation worries and potentially hawkish Fed.

For context, the Fed is slowly abandoning the easing bias with more and more policymakers talking about the need of keeping all options on the table, and some explicitly bringing up rate hike possibilities.

In the short-term, the reopening of the Strait could weigh on the greenback as oil prices will likely fall quickly and rate cut bets will increase. After that though, the focus will quickly turn back to the Fed and the economic data.

With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually require rate hikes anyway to bring it sustainably back to the 2% target that the Fed has been missing since 2021.

There’s also another scenario where the Strait remains closed for longer and oil prices stay elevated, with the risk of the Fed being forced to hike anyway giving the dollar a boost and weighing on general risk sentiment.

JPY:

On the JPY side, nothing has changed fundamentally. Japanese officials have been intervening in the FX market, but yen sellers have been quick in fading the moves due to the persistently negative macro backdrop.

The BoJ recently left interest rates unchanged at 0.75% as widely expected but the highlight of the decision weren’t the three dissenters voting for a rate hike, but Governor Ueda adopting a less hawkish stance.

In fact, he noted that they want to take a little bit more time in gauging how the Middle East situation would affect Japan’s economy and acknowledged that underlying inflation is currently a bit below the 2% target.

He added that they expect underlying inflation to be around 2% from second half of 2026 but admitted that he doesn’t know how many months it would take to gauge timing of their next rate hike. This is going to keep weighing on the Japanese yen despite the interventions. All in all, the bias for the Japanese Yen remains bearish.

USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can see that USDJPY broke above the key 158.00 resistance zone and extended the gains into the 159.00 handle. The natural target should be the cycle high around the 162.00 level. If we get a pullback into the resistance now turned support, we can expect the buyers to step in with a defined risk below the support to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to pile in for a drop into the major upward trendline.

USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we have an upward trendline defining the bullish momentum. The buyers will likely continue to lean on the trendline to keep pushing into new highs, while the sellers will want to see the price breaking lower to pile in for a drop into the support targeting a break.

USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add as the buyers will have a better risk to reward setup around the trendline or the support. For the sellers, it would be better to wait for a break below the support as fundamental conditions remain firmly skewed to the upside. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Today, we have Fed’s Waller speaking. Tomorrow, we have the FOMC meeting minutes. On Thursday, we get the latest US Jobless Claims figures and the US Flash PMIs. On Friday, we conclude the week with the Japanese CPI report.