USD/JPY rose for a third day on Thursday and traded near 159.18. This returns the pair to levels linked to official Japanese “rate checks” on 23 January, raising talk of possible intervention. The Yen stayed weak due to a wide interest-rate gap between Japan and other major economies. Markets also focused on Japan’s fiscal stance and the country’s already high public debt.

Intervention Risk Returns

Demand for the US Dollar increased amid the US-Iran conflict. Oil flows through the Strait of Hormuz have been severely disrupted, affecting a key route for global crude exports. Japan, a large net energy importer with much supply from the Middle East, faces higher import costs. This could hurt growth and the trade balance and add pressure on the Yen. The Bank of Japan has continued a cautious approach to policy tightening. Governor Kazuo Ueda said on Thursday the BoJ will set policy while closely assessing how foreign-exchange moves affect its forecasts. Markets expect a BoJ rate rise in April, but the timing remains uncertain. At the same time, expectations for US rate cuts have dropped to less than 25 basis points by year-end, from more than 50 basis points before the Middle East conflict, supporting the Dollar via higher US Treasury yields. US data due on Friday include the PCE Price Index, preliminary Q4 annualised GDP, Durable Goods Orders, and the University of Michigan sentiment and expectations index.

Traders Weigh Policy And Volatility

Looking back at the situation in early 2025, we saw USD/JPY push past 159, triggering serious concern from Japanese officials. Now, in March 2026, the pair is again approaching that critical level, trading near 158.50, which brings the potential for intervention back into sharp focus for traders. This creates a familiar but tense environment for currency markets. We remember that following the warnings in January 2025, the Ministry of Finance did eventually step into the market in the spring of that year. Records show they spent nearly ¥7 trillion to support the yen, causing a rapid, multi-yen drop in the pair over just a few days. This history suggests that while officials may issue verbal warnings first, their tolerance has a clear and costly limit. The fundamental issue of the interest rate gap, a major driver of yen weakness in 2025, persists today. Although the Bank of Japan has since raised its policy rate to 0.25%, the U.S. Federal Reserve has only cautiously cut its own rate to 4.75%, leaving a substantial differential that encourages carry trades. This underlying pressure makes sustained yen strength difficult to achieve without official action. The energy shock from the US-Iran conflict in 2025 also left a lasting mark on the market. While the severe disruptions at the Strait of Hormuz have eased, global oil prices have established a higher floor, with WTI crude now consistently trading around $85 per barrel, up from pre-conflict levels. This continues to weigh on Japan’s trade balance and contributes to the yen’s structural weakness. Given the current proximity to the 2025 intervention zone, derivative traders should consider strategies that protect against a sudden, sharp decline in USD/JPY. Buying put options with a one- or two-month expiry provides a direct hedge against a surprise move by Japanese authorities. The cost of this insurance is a necessary consideration when the risk of a 3-5% drop in the pair is elevated. At the same time, the interest rate differential continues to favor holding U.S. dollars over yen, suggesting the path of least resistance remains upward. A cautious bullish strategy could involve using call spreads, which cap both potential profits and losses. This allows traders to benefit from a continued grind higher in USD/JPY while defining their maximum risk should intervention occur. Create your live VT Markets account and start trading now.

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