USD/JPY fell on Friday as the yen strengthened and the US dollar weakened, with lower oil prices adding support for Japan. The pair traded near 158.18, down 0.61% on the day.
The move stayed within a one-month range of 157.50 to 160.50, and the pair was set for a third weekly drop. This tracked the US Dollar Index, which remained under pressure amid improved sentiment linked to US–Iran peace talks.
Oil Prices Drive Yen Strength
Crude oil dropped by more than 10% after Iran reopened the Strait of Hormuz. Iran said commercial passage was open for the rest of the truce period, with transit on routes set by Iran’s Ports and Maritime Organisation.
Lower oil prices reduced near-term inflation pressure and increased expectations of Federal Reserve rate cuts, while supporting the Bank of Japan’s gradual policy normalisation. Markets were set to watch US–Iran developments over the weekend, with nuclear issues still unresolved.
On the daily chart, price was below the 20-day Bollinger Band SMA at 159.20 and near lower-band support at 158.15. RSI was 46 and MACD was about -0.20, with resistance at 159.20 and 160.25, and support at 158.15.
The sudden drop in oil prices is the most important factor for us right now, as it directly strengthens the Yen and eases pressure on the US Federal Reserve. WTI crude futures have fallen to around $81 a barrel after Iran’s announcement, a level we haven’t seen in months, easing global inflation fears. This gives the Bank of Japan cover to continue its slow policy normalization without causing too much economic strain.
This shift in energy markets is immediately reflected in rate cut expectations, directly impacting the US Dollar. The CME FedWatch Tool now indicates a nearly 75% probability of a 25-basis point rate cut by the Federal Reserve’s July meeting, a sharp increase from just a few weeks ago. With Japan’s own core inflation having moderated to 2.1% last month, the policy divergence that propelled USD/JPY higher appears to be narrowing.
Trading Outlook And Key Risks
From a trading perspective, the path of least resistance for USD/JPY seems to be lower in the coming weeks. The technical picture is bearish, with momentum indicators pointing down and the pair trading below its 20-day moving average. We remember the multiple interventions by the Ministry of Finance back in late 2024 and 2025 to defend the Yen, and this fundamental shift may be what they were waiting for.
Given the bearish macro and technical setup, traders should consider positioning for a further decline. Buying puts with a strike price below 158.00 could be an effective way to capitalize on a break of the current support level. These positions offer a defined-risk way to target a move toward the 157.50 range bottom and potentially lower.
The primary risk to this view is a breakdown in the US-Iran talks over the weekend, which could send oil prices soaring again and revive the dollar’s safe-haven appeal. Therefore, using options strategies like put spreads can help manage costs and protect against a sudden reversal. Watch for a daily close below 158.15, as this would likely serve as a confirmation signal for further downside.
