USD/JPY briefly fell to just under 157.00 after reports that Iran may reopen the Strait of Hormuz within seven days if the US eases military pressure and lifts its blockade of Iranian ports, before rebounding to about 157.50. The session high again reached the 200-day EMA above 157.50 for the second time in three sessions, while the low has risen in each session since the Bank of Japan lifted rates on 18 September. Brent was trading around $100 on Tuesday, but the conditional nature of the Hormuz proposal meant it did little to alter Japan’s near-term dollar oil bill or the yield advantage favouring the dollar.
Policy expectations kept attention on the rate differential. The BoJ rate is 1.25% after a 7-2 vote, the highest since April 1995, with Asada and Sato preferring 1%. Fed projections place the policy rate at 4.1% at year-end, while futures imply about 4.2% by December, leaving a 2.625-point gap versus Japan. Japan’s markets reopen on Thursday after holidays; the flash manufacturing survey is seen near 54.8. US events include speeches from Williams at 08:10 GMT Thursday and 09:15 GMT Friday, Hammack at 12:50 GMT Thursday and 18:00 GMT Friday, and Paulson at 13:00 GMT Thursday, plus jobless claims forecast at 201K after 196K. Technical levels cited include 158.00 resistance and support at 156.50, with Stoch RSI at 32.
Short-Term Volatility and Geopolitical Risks
We believe derivative traders should prepare for increased volatility in the USD/JPY pair as global oil price fluctuations shake the market. Because Japan relies on imports for roughly 97% of its crude oil, cheaper energy should theoretically strengthen the Yen. However, we saw how quickly the Yen gave back its gains after Iran’s conditional offer to reopen the Strait of Hormuz, proving that geopolitical headlines only offer short-term trading opportunities.
Rate Differentials, Technical Levels, and Policy Event Risks
We recommend that traders focus on the persistent interest rate gap, which still heavily favors the US Dollar. Even with the Bank of Japan raising rates to 1.25%, US Dollar assets yield 2.625 percentage points more than Yen ones, keeping the carry trade highly profitable. We should look to buy USD/JPY on dips above the key support level of 156.50, targeting a move back toward 158.00.
We must closely monitor the heavy slate of Federal Reserve speeches and US weekly jobless claims in the coming days. If US policymakers continue to support another interest rate hike this year, the yield differential will likely keep widening in the Dollar’s favor. Our momentum indicators, such as the daily Stochastic RSI turning up from the bottom of its range, support this bullish view.
We must also manage the risk of sudden intervention by Japanese officials, especially as Tokyo banks return to full capacity. Historically, Japanese authorities have conducted rate checks and stepped in to buy Yen around the 158.00 level, which famously happened during the heavy market interventions of 2024. To protect our portfolios, we should place tight stop-loss orders just below 156.50 and be ready to lock in profits if the pair approaches 158.00.
