USD/JPY traded near 159.40 on Thursday after rising earlier, then turning more volatile in the US session when headlines briefly improved risk appetite. The move followed fresh tensions tied to Iran and shipping through the Strait of Hormuz.
US President Donald Trump said the US would “go harder”, warned that two to three more weeks of fighting are likely, and ruled out negotiations. Iran appeared unwilling to engage diplomatically and maintained control over the Strait of Hormuz.
Risk Sentiment And Dollar Support
Markets first moved into risk-off trading as oil prices jumped, while stocks, bonds, and gold fell, lifting demand for the US Dollar. USD/JPY rose as the Dollar gained from safe-haven flows and relative economic resilience.
The pair later gave back part of its gains after reports said Iran is drafting a protocol with Oman to manage and facilitate traffic through the Strait of Hormuz. This suggested a possible step towards steadier shipping conditions.
In Japan, the Yen remained under pressure because the country relies heavily on imported energy, which can worsen the trade balance when oil rises. Officials repeated warnings about excessive Yen weakness, but the impact was limited without a clear Bank of Japan policy change.
On the 4-hour chart, USD/JPY was 159.37, with RSI near 52 and support at 159.32, 159.24, and about 159.20. Resistance was 159.39 and 159.70, with 160.00 above.
Macro Drivers And Policy Risk
Given the high USD/JPY exchange rate, we see that the fundamental story from last year remains largely in place. The wide interest rate gap between the US and Japan continues to drive capital towards the dollar, even after the Bank of Japan’s minor rate hike in March 2026. With US inflation proving sticky at 2.9% and the latest jobs report showing a resilient labor market, the Federal Reserve has little reason to cut rates aggressively.
The threat of currency intervention by Japanese authorities is now our main short-term risk, especially as we trade above 162.00. Looking back at the largely ineffective interventions of late 2025, we know that unilateral action can only temporarily slow the yen’s decline without a major policy shift. This suggests that selling out-of-the-money JPY calls could be a viable strategy to collect premium from traders betting on a sharp reversal.
Implied volatility in yen options is elevated but not at panic levels, with the JYVIX index hovering around 10.5. This environment makes strategies that profit from range-bound price action, like short strangles or iron condors, attractive for the coming weeks. We must, however, remain prepared for sudden spikes in volatility should Japanese officials decide to act forcefully.
The geopolitical risks highlighted in 2025 concerning the Strait of Hormuz have subsided but not disappeared, keeping energy prices firm. With WTI crude oil currently trading around $84 a barrel, Japan’s trade balance remains under pressure from its high energy import costs. This underlying weakness in Japan’s economy continues to weigh on the yen, reinforcing the case for a structurally weak currency.
