Strait Of Hormuz Shock
US and Israeli strikes on Iran led to the effective closure of the Strait of Hormuz. Higher crude oil prices added pressure to the Yen because Japan relies heavily on energy imports. Japan’s Finance Minister Katayama said authorities are monitoring the currency’s decline. The Bank of Japan is holding rates at 0.75%, and recent volatility has raised the chance of no March hike. In US data, ADP payrolls rose by 63K and ISM Services PMI came in at 56.1. The remaining high-impact releases this week are Friday’s US Nonfarm Payrolls and Retail Sales. On the daily chart, USD/JPY was at 157.07, with resistance at 157.70 and 158.40, then 160.00. Support sits near 156.00 and 155.30, then 153.00.How The Backdrop Changed
Looking back at the events of early 2025, we recall the extreme tension when USD/JPY was trading near 157.00 due to the Strait of Hormuz crisis. Today, with the pair trading much lower around 148.50, that period serves as a stark reminder of how quickly geopolitical risk can impact the yen. The easing of Middle East tensions throughout late 2025 allowed the focus to shift back to monetary policy fundamentals. The policy divergence that drove the dollar higher last year has reversed significantly. While the Bank of Japan held rates at 0.75% during the March 2025 turmoil, they eventually hiked twice later in the year to 1.25%, where the rate currently stands. This, combined with the Federal Reserve’s two recent quarter-point cuts, has narrowed the U.S.-Japan 10-year yield spread to just under 3.3% from its peak of over 4.1% a year ago. For derivative traders, this means implied volatility is now much lower than the elevated levels seen during the 2025 crisis. Three-month implied volatility for USD/JPY is currently hovering near 8.5%, a sharp contrast to the levels above 15% we saw during the shipping disruptions. This makes buying options relatively cheap, presenting an opportunity to position for future moves without the high premiums of last year. Recent data reinforces the potential for renewed yen strength. Last week’s Tokyo Core CPI came in at 2.8%, beating expectations and fueling speculation that the Bank of Japan may signal another rate hike by summer. This stands in contrast to softening U.S. labor market data, which keeps the door open for further Fed easing. Therefore, strategies should shift from the crisis-driven positioning of 2025. Given the lower volatility, purchasing long-dated JPY calls (or USD/JPY puts) offers a cost-effective way to speculate on a continued policy divergence that favors the yen. The 160.00 level that seemed possible a year ago is now a distant resistance, with traders instead using options to target a move toward the 145.00 support zone. Create your live VT Markets account and start trading now.
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