USD/JPY moved above 155 on broad US Dollar strength. This rise came even as geopolitical risks increased, which can support the Japanese Yen as a safe haven. Tensions between the US and Iran have grown. Reports suggest a US strike could happen within 10 days if there is no deal. Iran has said it would target bases and assets of hostile forces if attacked.
The Swiss Franc and Japanese Yen could see safe-haven demand if the Middle East conflict continues. Markets are also watching Japan’s FY26 budget talks and a proposal to suspend the food consumption tax for two years.
Dollar Strength Versus Safe Haven Flows
The IMF has urged Japan not to cut the consumption tax. It points to rising costs from debt servicing and welfare spending. The IMF also expects the Bank of Japan to raise its policy rate twice this year. It estimates Japan’s neutral rate at 1.5%.
Japan’s headline inflation slowed to 1.5% year on year in January, down from 2.1% in December. Core-core CPI held at 2.6% year on year, which suggests price pressures are still broad.
USD/JPY has pushed above 155 because the dollar is strong overall. That strength was supported by the early-February US jobs report, which showed wage growth is still firm. However, this trend is now facing a challenge from rising geopolitical risks, which could bring back the yen’s safe-haven demand. As a result, traders should be ready for sharp moves driven by headlines, not just economic data.
The risk of a US-Iran conflict is adding major uncertainty. This is one reason the CBOE Volatility Index (VIX) rose above 20 this week. In this kind of market, traders may want to consider buying volatility with options, such as USD/JPY straddles. A straddle can profit from a large move in either direction over the next few weeks, without needing to predict the outcome.
Positioning Around Policy And Volatility
In Japan, core-core inflation is still high at 2.6%. This gives the Bank of Japan room to raise rates again this year. The last rate hike in December 2025 did not do much to stop yen weakness. Now, markets are focused on the FY26 budget debate. Suspending the food consumption tax would likely run against the BoJ’s policy efforts and could keep the yen under pressure.
Because conflict risk is high, buying short-dated, out-of-the-money USD/JPY puts may be a lower-cost way to hedge against a sudden flight to safety into the yen. If Middle East tensions ease and US data stays strong, the broader uptrend may return, and the loss would be limited to the option premium. The focus is to prepare for a sharp, sudden move rather than a slow trend.
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