USD/JPY rose by over 0.86%, reaching 148.95 and approaching 149.00. This increase was driven by US inflation data, which showed a 2.7% year-on-year rise in the Consumer Price Index (CPI). US Treasury yields also went up, with the 10-year note reaching 4.483%. The market now sees a short-term rate cut as unlikely. Current data indicates a 95.87% chance of maintaining rates between 4.25% and 4.50% in June.

Technical Analysis For USD/JPY

From a technical standpoint, USD/JPY might encounter resistance at the 200-day Simple Moving Average (SMA) at 149.61. If it surpasses this level, the next target could be 150.00. However, if it fails to break through 149.00, a decline to 148.02 might follow. In the forex market, the Japanese Yen showed strength against the New Zealand Dollar. However, its value fell against other major currencies throughout the week. The currency percentage changes table gives more insights with various bases and quotes for a detailed analysis. This information emphasizes the risks and uncertainties found in forward-looking statements. Readers should conduct thorough research before making financial decisions, as trading carries significant risks. With US inflation being stickier than expected—recently recorded at a 3.5% annual rate—the overall USD/JPY environment has strengthened. The focus has shifted from merely considering a rate cut to acknowledging the widening gap between the Federal Reserve, which must remain steady, and a Bank of Japan that is only beginning to normalize its policy. This divergence is a driving force, and at present, it’s performing strongly. The CME FedWatch Tool now shows that the market only expects a 16% chance of a rate cut by June, a significant change suggesting an upward trajectory for the dollar.

Strategy and Intervention Concerns

For our strategy, this reinforces a bullish outlook on USD/JPY while keeping a close watch on potential risks. Our immediate approach involves buying call options with a strike price of 150.00. We view the technical resistance level at 149.61 not as a ceiling but as the next challenge to overcome before reaching that psychological barrier. For those with a more cautious perspective, selling out-of-the-money puts or setting up bull put spreads with the short leg below 148.00 allows for premium collection while betting on the support from rising US yields to avoid major declines. A significant concern is intervention. We need to be careful here. Looking back to fall 2022, Japanese authorities intervened aggressively to protect the yen as it approached 151.90. This level is now critical on our charts. While officials like Suzuki have increased warnings about “excessive moves,” words alone are not enough without substantial financial backing. Therefore, as we approach the 151.00-152.00 range, we will begin to hedge our long positions. Buying far out-of-the-money puts can serve as a low-cost insurance against a sudden reversal caused by the Ministry of Finance. Rising implied volatility in USD/JPY options indicates this intervention concern. This scenario presents a chance to sell volatility through strategies like iron condors, although the risk of a breakout is high. A prudent approach would be to use rising volatility to our advantage, such as by setting up call spreads that lower our entry cost while capping our upside. The yen’s broad weakness against most major currencies, except the kiwi dollar, this past week confirms that this situation is not just about the dollar; it’s primarily about yen weakness, which rarely reverses without a strong catalyst. Create your live VT Markets account and start trading now.

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