USD/JPY fell to about 158.40 on Thursday after the Federal Reserve and the Bank of Japan kept policy settings unchanged. The Fed held rates steady, and Jerome Powell said higher energy prices could lift inflation and that a rate cut would not happen without inflation progress. The Bank of Japan kept its policy rate at 0.75% and signalled a cautious approach. The vote was eight in favour of no change and one in favour of a rise, while the bank repeated it would keep raising rates if the economy and prices follow its outlook and it can meet its 2% inflation target.

Strait Of Hormuz Geopolitical Risks

Japan and other countries issued a joint statement on the Strait of Hormuz. They said they would take steps to stabilise energy markets, including working with certain producing nations to increase output, and said they were ready to support efforts to ensure safe passage through the strait. The statement called on Iran to stop threats, the laying of mines, drone and missile attacks, and other attempts to block the strait. It also condemned attacks by Iran on unarmed commercial vessels in the Gulf. In technical trading, USD/JPY was near 158.38 on the 4-hour chart. It moved below the 20-period SMA around 159.18, stayed above the rising 100-period SMA near 157.94, and the RSI fell towards 37. Resistance was noted at 159.05 and 159.29. Support was seen at 158.39 and 158.06, with the 100-period SMA as a possible next level if 158.06 breaks.

Market Positioning And Option Strategies

The drop in USD/JPY to 158.40, despite a hawkish Fed, signals that geopolitical fear is overpowering monetary policy for now. With the Strait of Hormuz situation escalating, traders are buying the yen as a safe haven. Since roughly a fifth of the world’s oil supply passes through that strait, any disruption could cause a severe energy shock. For those anticipating further escalation in the near term, buying put options with a strike price below the 158.06 support level could be a viable strategy. This allows for profiting from a continued slide driven by risk aversion, while capping the maximum potential loss. The technical momentum currently supports this bearish view, as the pair has broken below key short-term averages. We have seen this safe-haven demand for the yen before, particularly during the global financial crisis of 2008. In that period, risk aversion sent capital flooding into Japan, strengthening the yen significantly against expectations. The current market behavior is reminiscent of that dynamic, where fear becomes the primary driver of currency flows. However, the underlying interest rate difference between the US and Japan remains a powerful force that should not be ignored. We recall how this divergence consistently pushed USD/JPY higher throughout 2024 and 2025. If geopolitical tensions ease, the market’s focus will likely snap back to the Fed’s firm stance against the Bank of Japan’s dovishness, creating a strong tailwind for the pair. To position for a potential rebound, traders might consider purchasing call options dated a few weeks or months out. This would capitalize on a return to the underlying uptrend if the Hormuz situation de-escalates, with an initial target back toward the 159.29 resistance area. This approach allows traders to bet on the powerful fundamental story reasserting itself once the current panic subsides. Given the conflicting signals between geopolitics and central bank policy, implied volatility is expected to rise. A strategy of buying both a put and a call option (a long straddle) could be effective for traders who believe a large price move is imminent but are unsure of the direction. This would profit from a significant break either below 158.00 or a sharp reversal back above 159.50. Create your live VT Markets account and start trading now.

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