FX.co ★ USD/JPY in crisis

154.80 is the new price ceiling for USD/JPY. On the wave of the dollar rally, buyers twice approached this resistance level (which, by the way, corresponds to the upper line of the Bollinger Bands indicator on the D1 timeframe) and pulled back twice. However, this does not mean that traders are afraid of the 155 level. After the instrument overcame the psychologically important barrier of 152.00, higher levels do not inspire fears anymore, so this factor plays a secondary role. The Japanese monetary authorities continue to stand on the sidelines, limiting themselves to verbal interventions that no longer have any impact on the market. Buyers of USD/JPY, like sharks, "are sniffing the smell of blood" and, taking advantage of the "impunity", pushed the price upward for several weeks.

Take a look at the weekly chart of US/JPY. The instrument has been following the uptrend for the sixth week in a row. Over this time, the price increased by no less than 800 pips! And the target of 155.00 is not much different from the previous "red lines", starting from the level of 152.00. Buyers of USD/JPY stopped for one simple reason: dollar bulls loosened their grip amid growing risk appetite and geopolitical outcome in the Middle East (no further escalation of the conflict between Iran and Israel). Plus, the market has already played out the most significant fundamental signals that appeared last week. Rising inflation in the US has pushed the expected timeline for the Fed's interest rate cut from June to at least September. Thanks to this fundamental factor, USD/JPY rose from 151.50 to a new 34-year high of 154.80.

But to conquer higher than 155 levels, additional informational catalysts are needed. But they are not available. At least this week, all news has had a limited impact on USD/JPY. For example, retail sales in the US increased in March by 0.7%, stronger than a forecast of 0.4%. Excluding auto, retail sales rose by 1.1% versus a forecast of 0.5%. Buyers of USD/JPY reacted to this report with growth, pushing the price towards 154.80, but momentum faded in this area.

Fed Chairman Jerome Powell also did not impress traders, although he voiced hawkish messages. He made it clear that the regulator would not reduce the interest rate in June, but the market had already reacted to this "news". In general, market participants clearly expected more from Powell. But he maintained a balance in his rhetoric, did not deliver a clear-cut message, and, as a result, provided weak (and short-term) support for the American currency.

In other words, dollar bulls (and USD/JPY buyers) are going through a crisis. The old information catalysts no longer work, and there are simply no new ones.

However, all is not lost. Tomorrow, on April 19, at the start of the Asian session in Japan, key data on Japan's inflation for March will be published. The acceleration of inflation will probably have a limited impact on USD/JPY: a corrective pullback is possible, but no more. But if inflation slows down more than expected, USD/JPY buyers may again try to approach the 155 level, and perhaps test this barrier.

Let me remind you that in February, the overall consumer price index rose sharply to 2.8%, after a three-month downward movement (in January the CPI dropped to 2.2%). According to flash estimates, the national CPI will reach 2.7% in March. So, the inflation growth rate will slow down. The core CPI excluding fresh food prices is expected to show similar dynamics, declining to 2.7% after rising to 2.8%.

It is obvious that Japanese CPI data will affect market expectations regarding a rate increase by the Bank of Japan. Easing price pressure will negatively affect traders' expectations regarding further tightening of monetary policy in Japan. In this case, buyers of USD/JPY can again overcome the resistance level of 154.80 (the upper line of the Bollinger Bands indicator on the daily chart) and try to climb above 155.

Will the Japanese government react to another price surge? In fact, many experts (in particular, analysts at Rabobank and UOB Group) say that the risk of forex intervention to prevent USD/JPY from breaking through the 155.00 target is quite high.

By the way, today Japanese Deputy Finance Minister for International Affairs Masato Kanda once again stated that the authorities "do not exclude any options for action in the event of excessive movement of the yen." He did not specify whether the 155.00+ price zone meets this criterion. But it is Kanda who has the right to initiate intervention, so his concern in this context sounds like a warning.

Thus, on the one hand, the emerging fundamental background contributes to a further increase in the price of USD/JPY, especially if inflation in Japan slows down more than expected. On the other hand, we must not forget about the high risks of retaliatory measures from the Japanese authorities. Each upward point above 155.00 increases the risk of currency intervention.

In such conditions, it is impossible to recommend long positions, even though almost all fundamental factors point to further growth in USD/JPY.