USD/JPY finally reaches a key level after multiple interventions. What's next?

What the desk is arguing

The desk frames this as a critical juncture for USD/JPY, with the pair testing key support levels after significant market interventions. The recent weakening of the US dollar, driven by diplomatic progress with Iran, could lead to short-term volatility, but the underlying bearish bias for the yen remains intact due to Japan's economic outlook and the BoJ's cautious stance.

Supporting this view, the USD/JPY has recently dropped below the 158.00 level, with interventions pushing it down to the 155.00 handle. The Fed's gradual shift away from an easing bias, alongside resilient US economic data, suggests that inflationary pressures may require a more aggressive monetary response in the future, which could further support the dollar against the yen.

The alternative read would be that if geopolitical tensions escalate or if US economic data disappoints, we could see a stronger yen rally, challenging the current bearish sentiment.

Where it sits in our coverage

Our consensus target for USD/JPY is 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)

This view aligns with jpmorgan, which sees a stronger dollar outlook, while bofa holds a more bearish stance at the lower end of the range. The desk's call is positioned at the upper bound of the spread, indicating a more optimistic view on the dollar's strength against the yen.

How other firms see it

Firms like jpmorgan and citi are aligned with the desk's bullish outlook on the USD/JPY, anticipating further dollar strength amid improving US economic conditions. Conversely, bofa presents a contrary view, expecting a weaker dollar and a stronger yen in the near term.

Additionally, the EUR/USD trajectory mirrors the Fed's rate path, making it a relevant pair to watch alongside USD/JPY for potential spillover effects from US economic data releases.

What the calendar says

With the upcoming US ADP report and Jobless Claims figures, traders should be prepared for potential volatility in USD/JPY. The culmination of the week with the US NFP report and Japanese wage data will be critical in shaping market expectations around monetary policy and economic recovery.