USD/JPY traded near 160.20, close to a two-year high, after the Federal Reserve kept interest rates unchanged. It was described as the last meeting chaired by Jerome Powell, and the statement said inflation is “elevated”, ahead of Powell’s press conference.
Kevin Warsh, President Donald Trump’s nominee to become Fed Chair, was confirmed by the US Senate Banking Committee in a 13-11 vote. He still needs full Senate confirmation before replacing Powell on May 15.
Geopolitical And Policy Drivers
White House officials said President Trump has discussed with oil companies continuing the blockade in the Strait of Hormuz until Iran agrees to a nuclear deal. The report coincided with rises in both the US dollar and oil.
Japan is due to release Retail Trade later today, Tokyo CPI on Thursday, and Bank of Japan policy minutes on Friday. The pair is near levels where the Japanese Government has previously intervened verbally.
On the four-hour chart, USD/JPY traded at 160.26, above the 20-period and 100-period SMAs at 159.53 and 159.22. Prior levels around 160.17 acted as support, while the RSI (14) was near 67.
Resistance was noted at 160.32 and 160.36, with support at 160.17 and 159.82. Additional support sat at 159.53 and 159.22.
Historical Parallels And Intervention Risk
We remember looking at the dollar-yen pair touching 160 back in 2025 after a hawkish Federal Reserve hold. That situation was driven by a strong dollar and geopolitical tensions, which feels very similar to the factors at play right now. This history provides a clear playbook for how the market might behave in the coming weeks.
The primary risk now, as it was then, is direct intervention by the Japanese government. We saw this in April and May of 2024, when authorities spent an estimated ¥9.8 trillion to defend the currency after it weakened past the 160 level. Given this precedent, derivative traders should consider buying yen call options or USD/JPY put options to hedge against a sudden, sharp strengthening of the yen.
This nervousness is already being reflected in the options market, where one-month implied volatility for USD/JPY has climbed above 11%. That is a significant increase from the sub-8% levels we saw at the start of the year. This means protection is getting more expensive, so acting sooner may be beneficial.
The underlying pressure on the yen remains due to the massive interest rate differential between the U.S. and Japan. With the Federal Reserve funds rate holding at 4.75% and the Bank of Japan’s policy rate at a mere 0.10%, the incentive to favor the dollar is overwhelming. This fundamental reality suggests that any intervention-driven dips in the pair could be short-lived.
This tension is visible in risk reversals, which show that the cost of options protecting against a drop in USD/JPY has risen sharply. Traders are paying a much higher premium for puts than calls, signaling that the market is bracing for a potential surprise move lower. This defensive positioning is a key signal for how to structure trades over the next few weeks.
