USD/JPY stayed positive for a third day and was near 159.60 in Asian trading on Friday. It gained over 0.5% on Thursday but moved little due to thin trade during the Good Friday holiday.
The yen remained under pressure as uncertainty grew about the Bank of Japan’s policy path. The bank has indicated a possible rate rise this month, but markets remain unsure about guidance before the 28 April policy meeting.
Bank Of Japan Policy Uncertainty
Reuters reported that a senior BoJ official said rates would keep rising if economic forecasts stayed on track. The official also referred to strain on firms from higher fuel costs linked to Middle East tensions.
BoJ Executive Director Koji Nakamura told parliament that higher oil prices could hurt growth. He also said they could lift underlying inflation by pushing up long-term inflation expectations.
The US dollar found support from safe-haven demand after US President Donald Trump raised threats towards Iran. He gave no detail on reopening the Strait of Hormuz and warned of military action over the next two to three weeks.
Iran’s Foreign Minister Abbas Araghchi said US strikes on civilian infrastructure would not force a retreat. He spoke after the BoJ’s long-held aim of price stability, with an inflation target of around 2%.
April 2026 Market Drivers
Looking back at the situation in the spring of 2025, we can see the foundation for today’s market dynamics. At that time, the Bank of Japan was just beginning its slow pivot away from its ultra-loose policy, but the yen’s weakness persisted. Today, on April 3, 2026, with USD/JPY trading near 165.00, it is clear that the interest rate differential between the US and Japan remains the dominant driver.
The Bank of Japan has since raised its policy rate twice, bringing it to 0.25%, but this has done little to stop the yen’s slide. Japan’s core CPI for February 2026 came in at 2.8%, remaining stubbornly above the BoJ’s 2% target for over two years now. This continued inflation fuels market expectations for further rate hikes, creating significant uncertainty around the upcoming April 28 policy meeting.
Meanwhile, the US Dollar remains robust, supported by a resilient American economy. The latest US Non-Farm Payrolls report for March 2026 showed a healthy addition of 215,000 jobs, reinforcing the Federal Reserve’s stance to keep interest rates elevated for longer. This policy divergence is the central reason the yen has failed to gain any lasting strength.
With the USD/JPY exchange rate now in territory not seen in decades, the risk of direct currency intervention by the Japanese Ministry of Finance is extremely high. We saw such interventions in late 2022 when the pair crossed the 150 level, and the verbal warnings from officials have become more frequent in recent weeks. This creates a significant risk of a sudden, sharp drop of 300-500 pips in the pair.
For derivative traders, this environment makes outright long positions risky, so buying USD/JPY call options is a prudent strategy. This allows for participation in any further upside drift while capping potential losses if the Ministry of Finance decides to intervene. Implied volatility has been rising, so entry timing on these options is key.
Given the binary risk of either a surprise BoJ announcement or a government intervention, volatility itself is a tradable asset. We believe purchasing straddles ahead of the late April BoJ meeting could be profitable. This strategy will pay out if there is a large price move in either direction, capitalizing on the current market tension without betting on a specific outcome.
