Analysts at Citigroup recommended selling the USD/JPY pair on rallies above the 135.00 level amidst expectations of a hawkish Bank of Japan (BoJ) policy pivot.

Key quotes

"With the likelihood of a BoJ policy adjustment in April now lessening, US interest rates are rising and the USD are rebounding across the board, especially after the strong employment statistics released earlier this month. We expect the recovery in USDJPY to continue in the near term somewhat beyond the 135 level, for instance to around 137, largely a 38.2% Fibonacci retracement of the decline since October.”

"However, there will be the ongoing potential for downward pressure on USDJPY as long as the market remains wary of the risk of an eventual policy adjustment under the new BoJ troika. Once the US market finishes repricing the Fed's terminal interest rate at that time, the pair will turn downwards again and a new downtrend to start. On a timeline through around June, we expect a decline to about 125.”