USD/JPY traded near 159.40 on Thursday after rising earlier, then turning more volatile in the US session as news briefly improved risk sentiment. The move followed growing tension between the US and Iran and fresh developments around 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 also showed little interest in diplomacy and maintained control over the Strait of Hormuz.
Risk Sentiment And Strait Of Hormuz
Markets first shifted to risk-off, with oil rising sharply while stocks, bonds, and gold fell, lifting demand for the US Dollar. USD/JPY then pared gains after reports that Iran is drafting a protocol with Oman to manage and facilitate traffic through the Strait of Hormuz.
In Japan, the Yen remained under pressure due to reliance on imported energy, as higher oil prices can worsen the trade balance. Authorities repeated warnings about excessive Yen weakness, but no policy change from the Bank of Japan has followed.
On the 4-hour chart, USD/JPY was 159.37, holding above the 20-period and 100-period SMAs. RSI was near 52, with support at 159.32 and 159.24, and resistance at 159.39 and 159.70.
A break below 159.24 may target the 100-period SMA near 159.20. A move above 159.70 may open 160.00.
Historical Context And Intervention Risk
We remember looking at the USD/JPY pair push towards 159.40 last year, driven by the flare-up in tensions between the US and Iran. The surge in oil prices at the time put immediate pressure on the Yen, reinforcing the pair’s underlying uptrend. That dynamic established a playbook for how markets react to Middle East instability, something we continue to monitor.
As we saw in late 2025, Japanese authorities did intervene when the pair breached the 160.00 mark, causing a sharp but short-lived drop. The fundamental story hasn’t changed, as Japan’s Ministry of Finance reported another significant trade deficit this past January due to persistently high energy costs. With WTI crude averaging around $88 per barrel in the first quarter of 2026, the pressure on Japan’s economy remains intense.
The interest rate differential continues to be the primary driver of this market, even as the Federal Reserve has signaled a pause in its hiking cycle. The Bank of Japan has still not committed to any meaningful policy normalization, which keeps the yield on US bonds far more attractive than their Japanese counterparts. This policy gap provides a strong floor for USD/JPY whenever it pulls back.
Given this environment, implied volatility in USD/JPY options will likely stay high, especially on one- to three-month contracts. The risk of another official intervention from Tokyo puts a ceiling on the pair, while the policy divergence creates a floor, suggesting more choppy price action ahead. This makes strategies like long straddles appealing for those who expect a big move but are uncertain of the direction.
For traders with a bullish bias, buying call options on USD/JPY continues to make sense as a way to gain upside exposure with limited risk. Using call spreads can help lower the cost of the position, which is a sensible approach if you believe authorities will cap any rally near the 160.50-161.00 area. This allows one to profit from the gradual upward grind without being overexposed to a sudden intervention-led reversal.
