USD/JPY is testing long-term highs at 154.78 with the BoJ on focus

Nothing stops the US Dollar. Neither the moderate risk appetite seen on Monday nor the reiterated intervention warnings by diverse economic authorities, the Yen remains pinned to long-term lows near 155.00.

The pair extended its recovery on Monday, following a spike lower last week, following news of the Israeli attack on Iran. Tehran downplayed the event, suggesting its will to avoid a direct confrontation with Tel Aviv, which the market has welcomed.

This has failed to give some oxygen to a battered Yen, which is struggling on carry trade dynamics. The widening yield differential between the Yen and most of the major currencies encourages speculators to borrow JPY and exchange for higher-yielding assets elsewhere.

Adverse interest rate differentials are weighing on the JPY

Last week, an unusual joint statement from the US, Japanese, and South Korean authorities pledged to act against excessive currency volatility. This had an immediate easing impact on the US Dollar, which seems to have faded on Monday.

Yen's weakness helps Japanese exporters to sell their products on foreign markets but makes imports more expensive in the domestic ones. This has an inflationary impact on prices and forces the BoJ to accelerate its normalization pace. The Japanese central bank meets on Friday, after the release of the anticipated Tokyo CPI figures. Any hint on that lion at the bank’s statement might give some fresh impulse to the Yen.

In the US, the focus will be on Thursday’s first-quarter GDP figures and Friday’s PCE Prices Index data. This is the Fed’s gauge of choice to assess inflationary trends and might set the US Dollar’s near-term direction.