Local high for USDJPY is now seen as level of 145

As a result of last week's surge in the yen, traders revised their worst predictions for the once volatile currency to a high of 145 per dollar.

The yen posted its best gain against the dollar since 2008 this week, rising nearly 6 percent, as lower-than-forecast inflation figures caused a sharp easing of hawkish sentiment over a Federal Reserve rate hike. But the drop in the dollar-yen pair below the 140 mark was probably too fast and too strong, strategists said. In turn, the Fed's response to overly dovish rate expectations is likely to add to the pressure.

Juntaro Morimoto, a currency analyst at Sony Financial Group, believes the Fed will not ease policy tightening based on one month of data and is likely to caution against optimistic forecasts in its comments this week. Given the interest rate differential, the dollar-yen could trade around 145.

The momentum indicators, which signaled overbought levels when the dollar-yen touched 151.95 last month, showed that the pair's decline looked excessive when it fell to 138.50 on Friday. That suggests that a return to 140 per dollar would not come as a surprise to traders.

Yoshifumi Takechi, chief analyst at Money Partners, said the dollar selling last week was excessive, and Waller's comments were a natural consequence of the Fed not wanting the markets to calm down. 

However, Takechi said any retreat of the yen is unlikely to cause it to weaken toward the lows of recent years.

He said that the dollar-yen range has shifted lower, and 145 has turned from a support level to a resistance level. But even with hawkish comments from the Fed, the dollar-yen will probably not reach 145.