The USD/JPY pair is currently positioned in the mid-154s following a notable rebound from earlier lows around 152.10 this week, indicating a clear change in the macroeconomic narrative rather than an arbitrary fluctuation. The Chicago PMI for January in the US surged to 54 from 43.5, exceeding the consensus of 44 and indicating a notable enhancement in activity momentum. Producer prices for December underscored that message: headline PPI increased by 0.5% month-on-month compared to the 0.2% anticipated, with the year-on-year rate at 3.0% versus a forecast of 2.7%. The Core PPI excluding food and energy recorded a month-on-month increase of 0.7% and a year-on-year rise of 3.3%, surpassing the estimates of 0.2% and 2.9% respectively. The data presented does not align with a robust, front-loaded Federal Reserve cutting cycle, leading markets to adjust their expectations regarding the speed and magnitude of anticipated rate reductions. Even the somewhat softer aspect of the US data – initial jobless claims at 209k compared to the expected 205k and the previous 210k – remains within a range that aligns with a tight labor market. Overlaying the current situation, political factors are contributing to a risk premium that supports the dollar rather than undermines it: President Trump has officially announced Kevin Warsh as his selection to succeed Jerome Powell upon the conclusion of his term in May. Additionally, the US Senate has reached a bipartisan consensus to prevent a government shutdown. Warsh is viewed as a somewhat hawkish institutional candidate rather than a political dove, which provides reassurance to markets regarding the Fed’s independence and its willingness to maintain a higher-for-longer policy. The interplay of a stronger-than-anticipated US inflation pipeline, improved activity metrics, and diminished fiscal disruption risk creates a scenario that favors the dollar in the USD/JPY pair, positioning it closer to 154 instead of 150.
The macroeconomic landscape in Japan suggests a contrasting trend, supporting a weaker yen in USD/JPY, even in light of occasional intervention warnings. December retail trade significantly underperformed, showing a year-on-year decline of 0.9% compared to the anticipated 0.7% increase. This indicates that domestic demand is unable to withstand the effects of aggressive tightening. Tokyo inflation is showing a downward trend: the Tokyo CPI excluding fresh food decreased to 2.0% year-on-year from 2.2%, while the more specific ex-food-and-energy measure also fell to 2.0%, compared to a forecast of 2.2%. Headline Tokyo CPI has decreased to 1.5% from 2.0% in December and 2.8% in November, falling short of the recent trend and reducing the pressure on the Bank of Japan to implement additional rate increases. The response in rate markets has been notable, with the anticipated timing for the next BoJ action shifting from March to April, while also reducing the likelihood of an unexpected move in the near future. Given that short-term Japanese rates are maintained close to zero and long-term yields are managed, Japan’s real yield profile continues to lag significantly behind that of the US, creating a challenging backdrop for any natural appreciation of the yen. Policymakers are thus depending on verbal intervention risk, issuing warnings about “excessive” movements and alluding to previous actions at critical psychological thresholds, instead of presenting a reliable trajectory toward substantially elevated domestic yields. The current economic landscape, characterized by negative retail growth, 2.0% core inflation, and 1.5% headline inflation, does not support a case for aggressive normalization, and the market reflects this in its pricing of USD/JPY.
The primary driver for the shift from 152.10 to the 154–155 range in USD/JPY is the yield spread, rather than just the headlines. US Treasury yields remain significantly elevated compared to Japanese Government Bond yields across the curve. With market expectations shifting towards fewer and later Federal Reserve cuts following the 0.5% PPI print and 3.3% core PPI, the carry on long-dollar positions continues to present an appealing opportunity. The US Dollar index has risen approximately 4% in the wider market following the Warsh nomination and robust data. Intraday currency performance tables indicate that the dollar is up about 0.96% against the yen and has also surpassed high-beta currencies such as the Australian dollar by over 1.2%. Japan’s shift from stringent yield-curve control has not resulted in significant rate competitiveness; actual Japanese yields continue to be low and less attractive when compared to US real yields. Consequently, institutional and leveraged accounts have persisted in funding in yen while maintaining long positions in USD/JPY through diverse carry structures. This strategy enhances fluctuations whenever macroeconomic factors come into play. When US yields increase or Fed pricing appears more hawkish, the pair can rapidly ascend, as demonstrated by the nearly 2-big-figure rebound from 152.10 to 154.37–154.50. Conversely, when risk sentiment shifts or concerns about intervention increase, those same crowded long positions can lead to sudden declines. However, the underlying spread structure continues to support buying on dips rather than selling on strength, provided that the US PPI and PMI remain stable and Tokyo CPI trends down toward 2%.
On the 60-minute chart, USD/JPY is exhibiting an upward trajectory within a distinct ascending channel. The price action observed on Friday, ranging from 154.37 to 154.50, is positioned slightly above the 100-hour moving average, while the 14-hour RSI approaches overbought conditions. The pattern reflects a classic trend-up behavior instead of a singular spike: the higher intraday lows from approximately 152.10 to 153.23, moving into the mid-154s, indicate that buyers are consistently entering on pullbacks. Intraday bulls are focusing on the 154.50 zone, where various analyses highlight a previously broken demand area that is now functioning as resistance. A sustained break and close above that band would pave the way toward 155.47 and subsequently 156.59, representing the next logical resistance clusters based on previous swing highs and short-term projections. On the 4-hour chart, the price action has formed a distinct “W” pattern as USD/JPY rebounded twice from the 152 level and subsequently regained the 20-period moving average, with the RSI rising back to the 50 area. The W-pattern suggests that a corrective phase has concluded, indicating a possible continuation of the overall uptrend, provided the pair remains above the midpoint of the pattern, which is approximately 152.70–153.00. From an analytical standpoint, the presence of an intraday rising channel, a 4-hour W-bottom, and short-term moving averages trending upward supports a buy-the-dip strategy. However, it is important to note that momentum appears to be stretched in the immediate term, which could lead to sharp but temporary pullbacks toward 153.23 or even 152.10, without undermining the bullish micro-structure.
Examining the daily timeframe, USD/JPY continues to operate within a wider ascending channel; however, the risk dynamics at various levels present a more complex picture than what the intraday charts indicate. On one side, the potential upward targets are clearly established: bullish participants will be looking for a shift from the current 153.90–154.50 range towards 155.47 and 156.59 in the short term, and further towards the upper daily resistance zone around 159.24, followed by the significant extension area near 163.37 if the dollar leg gains momentum. The daily chart reflects the recent pullback: the RSI has previously dipped toward oversold levels during earlier swings, and the last significant correction established support zones around 149.58 and 145.31. This situation establishes an imbalance where the trajectory is upward, yet there remains significant potential for a downward adjustment without jeopardizing the overall trend. The current support level for bulls is positioned between 152.00 and 152.10, reflecting the recent low and the lower edge of the 4-hour W-pattern. A clear breach below that level would bring 149.58 back into consideration and indicate that a more significant daily correction is in progress. Provided that daily closes stay above 152, and particularly above 153.23, the channel structure suggests that pullbacks present opportunities rather than indicating trend reversals. Traders with extended timeframes should consider 149.58 and 145.31 as critical downside levels in adverse scenarios, rather than as primary targets given the current macroeconomic environment, which supports the dollar in the USD/JPY pairing.