The USD/JPY exchange rate tumbled 1.34% to close at 122.66 yen per dollar on Wednesday after Bank of Japan Governor Haruhiko Kuroda told a group of Japanese legislators that the yen is unlikely to depreciate further. In April, Mr. Koichi Hamada, a consultant to Japan's Prime Minister Shinzo Abe on economic policy, said in an interview with Bloomberg that an exchange rate of 105 yen per dollar would be “appropriate,” while he doesn’t think the yen will fall much further and that 125 yen per dollar wouldn’t be justified. In short, Japan may want to cap the USD/JPY at 125 yen per dollar. 

Last Friday, the USD/JPY exchange rate hit a 52-week high, at 125.85 yen per dollar, after the release of the May U.S. non-farm payroll report, which came in better than expectations. The U.S. Bureau of Labor Statistics said that the U.S. government and private businesses added 280,000 jobs in May, above the 3-month average of 207,000 jobs and the 12-month average of 257,000 jobs, according to our data.

The currency pair pulled back sharply on Monday after a Bloomberg news wire report that President Barack Obama had told a Group of Seven industrial nations summit that the strong dollar was a problem. A senior U.S. official, as well as Mr. Obama himself, later denied that the comment was made. Nonetheless, the USD/JPY closed on Monday at 124.48 yen per dollar, down 0.88%, giving up almost all of its 0.99% Friday gain, after the May U.S. non-farm payroll report.

The Cabinet Office of Japan also said that Japan’s GDP was revised upward, to an annualized 3.9% in the first-quarter, from the preliminary estimate of a 2.4% gain, beating a median analyst estimate for 2.7% growth.

As of June 2, there are 167,577 short positions of Japanese yen (CME:6J), traded on the Chicago Mercantile Exchange (CME), by asset manager/institutional and leveraged funds. This is compared to about 50,337 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Net short positions have increased about 22,542 contracts from last week where Japanese yen contracts are traded in units of 12,500,000 Japanese yen.

Technically, the USD/JPY has been trading in a pseudo ascending triangle without the traditional flat top, since November 2014, with the head resistances between the 120.50, or ~ 61.8% Fibonacci retracement, and the 122 yen per dollar levels. At the end of May, the USD/JPY broke out of the ascending triangle but failed to break through the upper trendline of the USD/JPY up-trend channel. 

The currency pair could make a rebound from here as asset managers, institutional and hedge funds are still holding large short positions of the yen. In the case of a further pullback, the next supports are 121.41 yen per dollar and 120.50 yen per dollar, or the 61.8% Fibonacci retracement level.