USD/JPY was weaker around 157.40 in Tuesday’s US session, with the yen extending gains from the past week as softer US labour indicators dulled the dollar’s support. JOLTS showed openings at 7.359 million in June versus a revised 7.537 million in May, below the 7.4 million consensus, and this cooling pressured US Treasury yields while narrowing the rate gap that has helped the pair. Separately, lower energy prices supported Japan’s currency as a major net energy importer, while Al Arabiya said an announcement on reopening the Strait of Hormuz is expected; Al Hadath reported a full reopening could be announced within hours or on Wednesday.
Focus now turns to Bank of Japan meeting minutes from the June gathering, due late in the Asian session, alongside Japan’s Labour Cash Earnings, seen rising to 3.4% YoY in June from 3.2%. On the 4-hour chart, USD/JPY was at 157.37, below the 20-period SMA at 158.52 and the 100-period SMA at 162.06, with the RSI at 31. Support sits at 157.23, then 156.62 and 156.30, while resistance is marked at 157.99, 158.52 and 162.06.
Drivers Behind Yen Strength And USD/JPY Downside
We are seeing the USD/JPY pair face intense downward pressure, currently trading near the 157.40 level as the Japanese Yen capitalizes on a weaker US Dollar. This move is heavily driven by cooling US labor demand, with recent Job Openings (JOLTS) data falling to 7.359 million against expectations of 7.4 million. We believe derivative traders should prepare for continued near-term downside as the interest rate differential between the Federal Reserve and the Bank of Japan begins to narrow.
Adding to the Yen’s tailwinds, crude oil prices are easing on reports that the crucial Strait of Hormuz may fully reopen soon. Since Japan is a major net energy importer, lower energy costs significantly improve its terms of trade and strengthen the Yen. We suggest using short-term put options on USD/JPY to capture further downside as these geopolitical and energy-related pressures ease.
Technical Setups And Risk Management For Derivative Traders
On the Japanese side, we are closely watching the upcoming Labor Cash Earnings data, which is forecast to accelerate to 3.4% year-over-year. A strong wage print will validate Governor Kazuo Ueda’s focus on the wage-price cycle and likely trigger more hawkish bets for Bank of Japan rate hikes. To position for this, derivative traders can look at bearish risk reversals, buying puts and selling calls to leverage this fundamental shift.
From a technical perspective, the pair exhibits a strong bearish bias on the 4-hour chart as it remains well below the 20-period SMA at 158.52 and the 100-period SMA at 162.06. Immediate support is sitting at 157.23, and a break below this could quickly open the door to 156.62 and 156.30. We advise targeting these lower floors with put option strategies, keeping a close eye on the RSI which is currently hovering near oversold territory at 31.
We must remember how quickly the USD/JPY carry trade can unwind, much like the dramatic shift in mid-2024 when the pair plunged from over 161 down to the 140s in a matter of weeks. If Japanese wage growth indeed hits the projected 3.4%, we could see a similar rapid repricing of BoJ policy. Derivative traders should remain defensive, avoiding long positions until the pair can consistently reclaim and hold above the 158.52 resistance mark.
