USD/JPY extended its rise on Monday, up 0.28% to around 158.70, as the US Dollar gained while the yen stayed pressured by concerns over Japan’s public finances. The Dollar Index climbed above 102.50, its highest level since April 2025, helped by firmer oil prices linked to continued attacks on energy infrastructure in Russia and Ukraine and tension in the Middle East. After an announcement on Friday that both sides had agreed to suspend strikes on energy facilities, oil initially fell, but on Monday six Ukrainian energy sites were reported as having been targeted, while Iran’s Revolutionary Guards said a third supertanker had been set on fire in the Strait of Hormuz in two days.
Higher crude costs are a particular headwind for Japan given its reliance on dollar-priced imports, which can lift demand for foreign currency and weigh on JPY. Fiscal worries tied to expansionary policy plans and elevated sovereign debt have also limited support for the currency, although the prospect of further Bank of Japan rate hikes is a counterbalance as policy tilts towards a more pre-emptive stance on inflation beyond the 2% target. Real wages have risen for an eighth straight month. Technically, the pair traded at 158.71; the 100-period SMA sat at 158.21 and the 200-period SMA at 158.03, with RSI (14) near 70, resistance at 159.00, and support at 158.45 then 157.85, 157.00, 156.50 and 155.50.
Trading Strategy and Risk Management
We should maintain a cautiously bullish bias on USD/JPY options and futures while keeping tight risk management as the pair tests key resistance near 159.00. With the Relative Strength Index hovering near 70, intraday upside momentum appears stretched, making short-term call options or dip-buying strategies near the 158.45 support level far safer than chasing breakout rallies. Should price action breach 159.00, derivative traders can look toward upside targets, but trailing stops must be kept tight around the 100-period and 200-period moving averages at 158.21 and 158.03.
We recommend hedging against energy-driven volatility by holding long exposure to crude oil futures or call options alongside US Dollar positions. Japan imports over 90% of its energy needs, meaning rising energy costs force domestic importers to aggressively sell JPY for USD, directly driving USD/JPY upward while boosting the Dollar Index above 102.50. Given the active disruptions in critical shipping lanes like the Strait of Hormuz, energy-linked currency trades remain a reliable tailwind for the Greenback.
Volatility Considerations and Policy Divergence
At the same time, we must prepare for sudden volatility spikes as USD/JPY approaches the critical 160.00 psychological ceiling. Historically, Japanese authorities spent approximately ¥9.8 trillion ($62 billion) in mid-2024 to curb currency weakness when spot rates pushed past this line, creating extreme downside risk for unhedged long positions. Traders can use put options or downside straddles to protect against rapid pullbacks toward support floors at 157.00 and 155.50 if intervention or hawkish policy comments occur.
Finally, long-term options strategies should account for the divergence between Japan’s fiscal policy and its monetary policy outlook. With Japan’s public debt ratio standing above 250% of GDP, fiscal expansion under Prime Minister Sanae Takaichi continues to weaken structural trust in the Yen. However, eight consecutive months of real wage growth give Bank of Japan Governor Kazuo Ueda solid leverage to raise interest rates preemptively, making short-dated volatility strategies and interest rate swaps attractive tools for capturing market swings.
