The USD/JPY exchange rate surged to an intra-day high of 124.46 yen per dollar on Thursday after the Japan Ministry of Economy Trade and Industry announced that April's retail sales rose to a seasonally adjusted annual rate of 5.0%, missing the analysts’ forecast of a 5.4% increase. Despite many large Japanese corporations boosting base pay in April, the sharp increase in April was largely due to the comparatively low figure a year earlier, when retail sales fell steeply following the 2014 sales tax increase.

The weak retail sales data came on the heels of the report on Monday from the Japan Ministry of Finance showing that Japan's April trade deficit shrank to 53.4 billion yen, compared to the 809 billion yen deficit a year earlier, beating the economists’ expectations of a 325 billion yen deficit polled by The Wall Street Journal and the Nikkei Business Daily. Exports rose 8% year-on-year, beating the 6% forecast, while imports fell 4.2%, missing the consensus of a 1% decline.

The USD/JPY has been trading on an uptrend since last week when European Central Bank (ECB) Executive Board member Benoit Coeure announced that the ECB will front-load the quantitative easing (QE) 60 billion euro monthly bond buying, in May and June, in order for the central bank not to disrupt the market when trading volumes are lower in the summer. 

As of May 19, there are 122,954 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 68,269 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 4,221 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 bullish ascending triangle since November 2014, with the multiple head resistances between the 120.50, or ~ 61.8% Fibonacci retracement, and the 122 yen per dollar levels. In March, a symmetrical triangle emerged as the currency market couldn’t decide in which direction the Japanese yen would move next. Last week, the USD/JPY broke out of both the ascending triangle and the symmetrical triangle with the conservative projected price of 125.50 yen per dollar. There is a long-term resistance at 124.16 yen per dollar.

For the Nikkei 225, “bad news” is still “good news” as the weak yen is helping to boost the earnings of the big Japanese exporters. The strong performance of the Nikkei 225 in the past few months could also be attributed to the Bank of Japan's 80 trillion yen asset purchase program and the Japan Government Pension Investment Fund’s asset reallocation from bonds to stocks. The Nikkei 225 closed on Thursday at 20,551.46, a fresh 15-year high. If the yen stays weak, the Nikkei 225 could head back up to retest the March 30, 2000 high of 20,809.79.