The USD/JPY pair has continued its sideways movement for the second consecutive week, reflecting indecision among both buyers and sellers. The pair has drifted after a rapid 400-pip rise, from the base of the 155 figure to a local price peak of 159.36. The northern trend stalled on May 19 and then faded completely amid encouraging geopolitical signals and ongoing currency intervention risks.

Recall that Japanese authorities have signaled their presence in the currency market twice this year—on April 30 and May 6. In the first case, the central banks reacted after the USD/JPY pair reached a nearly two-year high, surpassing 160.70. In response to the currency intervention, the pair quickly fell to 155.58. However, the next day, buyers swiftly regained initiative and, within less than a week, approached the 158 figure. At this stage, Japanese authorities made their presence felt again, causing a nearly 300-pip decline toward the base of the 155 figure. Yet again, sellers could not hold their positions, allowing buyers to use the southern momentum as a motive to open long positions. Ultimately, the pair returned to the 159 figure area.

Interestingly, in this price range, the USD/JPY pair stalled without any hints or (let alone) actions from Japanese regulators. Even during periods of overall dollar strength, the price traded sideways, fluctuating within a narrow range.

Market participants even ignored the Friday report on Japan's CPI, which showed a slowdown in inflation in the Land of the Rising Sun. All components of the release fell short of forecast values, and in some cases, significantly so.

For instance, the overall consumer price index fell to 1.4% year-on-year in April, while most analysts had predicted a rise to 1.6% (from the previous 1.5%). Excluding fresh food prices, the index also showed a downward trend, slowing to 1.4%, against predictions of growth to 1.8%. Finally, the Core-Core CPI (excluding fresh food and energy) also fell sharply—to 1.9%, down from the previous value of 2.4%.

At first glance, such results should have intensified pressure on the yen, as they diminish the likelihood of further monetary policy tightening by the Bank of Japan in the foreseeable future. However, the currency market largely ignored the release, and the USD/JPY pair even reached an intraday high of 159.25. This reaction can be explained by the report's structure.

The main reason for the market's "coolness" is that April's inflation slowdown is deemed temporary. Key government support programs, primarily subsidies for electricity and gas, played a substantial role here. These measures essentially "muffled" utility rate increases, exerting downward pressure on inflation indicators.

In other words, the CPI slowed not because domestic demand in the Japanese economy weakened sharply or because price pressures disappeared, but because of government intervention.

Moreover, the market understands that this factor is inherently temporary. Furthermore, the Japanese government is already gradually rolling back energy subsidies, cutting compensation volumes for electricity and gas suppliers. This indicates that the effect that artificially restrained inflation in April will begin to wane in the coming months, until it completely fades away. As the subsidy effect fully dissipates, this sector will become a strong driver for upward CPI growth.

At the same time, traders ignored the slowdown in core inflation indicators, given the effect of last year's high base. Additionally, service-sector inflation in April remained at 1.7%, signaling stable domestic demand and no significant cooling in price pressures.

The market consensus conveys that the drop in Core-Core below the 2% level is a temporary phenomenon, especially amid the recent round of wage negotiations ("shunto"). Based on the outcomes of these negotiations, inflation in wage-oriented categories may stabilize or even accelerate again in the coming months.

Thus, the market is quite justified in not being swayed by Japan's April CPI report. Additionally, the risks of currency intervention come into play if USD/JPY approaches the 160 figure. At the same time, sellers are exercising caution amid rumors that the U.S. and Iran are close to concluding a preliminary deal that could "open" the Strait of Hormuz.

All this suggests that the USD/JPY pair will remain in a sideways range in the near term—at least until the intrigue surrounding the U.S.-Iran negotiations is resolved. The "working" price range remains 158.80–159.20 (the lower and upper lines of the Bollinger Bands on the H4 timeframe). In the current situation, it makes sense to trade the boundaries of the corridor, opening short positions as the price approaches the upper boundary and long positions as it declines towards the lower boundary.