USD/JPY flirts with a key upside breakout as yen's intervention-led gains continue to fade
The desk sees the USD/JPY poised for a potential upside breakout as the yen's recent gains, driven by intervention, appear to be waning. Per the full note source, the US dollar has regained traction amid higher-than-expected inflation data and geopolitical tensions, while the Bank of Japan's dovish stance continues to weigh on the yen. With the USD/JPY testing the critical 158.00 resistance level, a breakout could signal a move towards 162.00, contingent on the Fed's evolving policy stance and upcoming economic data. The market remains cautious, awaiting the US Retail Sales report and Jobless Claims figures, which could provide further direction.
What the desk is arguing
The desk believes that USD/JPY is on the verge of a key upside breakout, particularly as the Japanese yen's recent intervention-led gains are fading. Per the full note source, the US dollar has strengthened this week, supported by disappointing geopolitical developments and inflation data that exceeded expectations, which has kept traders in a range-bound state while they await further catalysts.
The latest US inflation figures have reinforced the Federal Reserve's shift away from an easing bias, with more policymakers suggesting the need for potential rate hikes. This backdrop, combined with the yen's persistent weakness due to the Bank of Japan's dovish outlook, positions USD/JPY for a possible rally if it can break above the 158.00 resistance level.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which sees a bullish outlook for USD/JPY, while bofa holds a more bearish stance, suggesting divergence within the market. The desk's call is positioned at the upper bound of the consensus range, indicating a more optimistic outlook compared to some peers.
How other firms see it
Firms aligned with a bullish view on USD/JPY include jpmorgan and citi, both anticipating a stronger dollar against the yen. Conversely, bofa and deutsche express caution, highlighting potential risks from ongoing geopolitical tensions and the impact of Japanese monetary policy.
Traders should also keep an eye on the EUR/USD trajectory, which may reflect broader market sentiment influenced by Fed policy shifts and economic data releases.
What the calendar says
With the US Retail Sales report and Jobless Claims figures due today, these data points could significantly impact market sentiment and provide the necessary impetus for USD/JPY to break through the 158.00 resistance level.
Key takeaways
- 01USD/JPY testing key 158.00 resistance level
- 02US inflation data supports Fed's potential rate hikes
- 03Japanese yen remains under pressure from BoJ's dovish stance
- 04Upcoming US Retail Sales and Jobless Claims may influence direction
Market implications
Watch for a breakout above 158.00 in USD/JPY, which could lead to a rally towards 162.00. The upcoming US Retail Sales report will be critical in shaping market expectations around Fed policy.
FUNDAMENTAL OVERVIEW USD: The US dollar regained some ground this week as US and Iran rejected the respective war-ending proposals and US inflation data came out higher than expected. Overall, the market remains rangebound as traders continue to wait for new developments before picking a direction. Looking ahead, 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 hikes.
The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely fall quickly and rate cut bets will increase on easing inflation worries. 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 even require rate hikes 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 that the Fed turns hawkish anyway and gives the greenback a strong boost given the bearish positioning on the dollar. 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 is now trading at the key 158.00 resistance zone.
This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the major trendline. The buyers, on the other hand, will want to see the price breaking higher to pile in for a rally into the 162.00 handle next. 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 major trendline. USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME On the 1 hour chart, there’s not much we can add as the buyers will look for a break above the resistance or another bounce around the trendline to keep pushing into new highs, while the sellers will need a break below the trendline to pile in for a pullback into the 156.50 support. The red lines define the average daily range for today.
UPCOMING CATALYSTS Today we get the US Retail Sales report and the latest US Jobless Claims figures. This article was written by Giuseppe Dellamotta at investinglive.com.
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