What could change the trend in USDJPY?

The Japanese Ministry of Finance finally intervened on Monday when the USDJPY exchange rate crossed the 160.00 mark. The pair fell 500 pips before recovering at the 155.00 mark and some key levels as bulls bought the dip. The problem here is that central bank interventions only work when fundamentals change. The impact is generally short-term in nature and the market moderates the move by buying/selling at even better levels.

On the 4-hour chart we can see that the 160.00 level is now clearly the line in the sand. The pair bounced around the 155.00 level where we had the recent swing low and a trend line. All else being equal, it is very likely that the pair will rise back into the 160.00 level, where we could see rejection as some profit-taking could lead to a pullback due to fear of further intervention.

On the 1-hour chart we can see that we had a resistance zone around the 157.00 level, but the hot Q1 ECI in the US triggered a breakout, after which more buyers joined in. There are rumors that the Japanese could change the current situation if the BoJ surprises with a rate hike. I don't understand why they should risk compromising progress on wage growth and inflation just to make a limited profit. From a risk management perspective, it doesn't seem like a good strategy.

This brings us to the only way to reverse the trend: US data is getting worse and the market is expecting three or more rate cuts. Much of the hawkish stance is already priced in, but the pair continues to rise as the carry trade remains large. A contrarian here will look at the record short positions in the yen and wait for the right catalyst to occur. At the moment we have none of that. Yes, there are signs of weakness in some soft data, but the hard data continues to surprise positively. Before the trend reverses, the market will want to see some confirmation from hard data or big downside surprises in things like the ISM PMIs.