USD/JPY rose for a third day, rebounding from about 158.25 and reaching the mid-159.00s in the Asian session. The move follows a bounce from the 200-period EMA on the 4-hour chart, near the lower edge of a short-term range.
The Japanese yen weakened amid concerns about the economic effects of the Middle East conflict and reduced expectations of a Bank of Japan rate rise in April. This supported US dollar demand and lifted the pair.
Dollar Support From Geopolitical Risk
Tensions around the Strait of Hormuz, linked to a US naval blockade of Iranian ports, helped the US dollar hold gains after touching its lowest level since late February. Hopes for diplomacy with Iran and softer expectations for US Federal Reserve policy were noted as limiting further USD strength.
Technical indicators point upwards, with the Relative Strength Index near 61 and the MACD rising in positive territory. Support is cited near 159.47, with further support at the 200-period EMA around 158.46.
We are seeing a familiar pattern in USD/JPY, reminiscent of the range-bound trading we observed around this time in 2025. The yen’s weakness is being driven by the Bank of Japan’s cautious stance, especially after the latest Tankan survey showed a decline in manufacturer sentiment, making further rate hikes seem unlikely. The pair is currently testing the 164.75 level, a multi-decade high that is making markets nervous.
Safe-haven flows are giving the US dollar a modest lift amid ongoing maritime tensions in the South China Sea. However, with the latest US CPI data showing inflation cooling to 2.8%, market pricing now suggests a 65% probability of a Fed rate cut before the fourth quarter, limiting the dollar’s potential. This policy divergence between a hesitant BoJ and a potentially easing Fed continues to be the central theme.
Options Strategies And Risk Management
For derivative traders, this suggests that buying call options on USD/JPY could be a viable strategy to capture potential upside toward the 165.00 psychological barrier. Given the capped upside from potential Fed easing, constructing a bull call spread might be more prudent than buying outright calls. This strategy allows us to profit from a moderate upward move while limiting our initial premium cost.
We must remain vigilant for intervention risk from Japanese authorities, as we saw with direct market action in late 2022 and with stern verbal warnings throughout 2024. As the pair pushes these highs, the probability of intervention increases significantly, which could cause a sudden and sharp drop of 300-500 pips. Therefore, traders holding long positions should consider buying out-of-the-money puts with a short-term expiry as a relatively cheap hedge against such an event.
