USD/JPY fell 0.9% to about 158.20 in European trading on Wednesday as the US Dollar weakened after a two-week ceasefire between the US and Iran. The US Dollar Index dropped 0.75% to around 98.75.
Donald Trump said planned attacks on Iranian civilian infrastructure were suspended for two weeks, after Tehran agreed to reopen the Strait of Hormuz. The strait carries almost 20% of global energy supply.
Usd Jpy Technical Outlook
Market pricing shifted on US interest rates after the truce, with the CME FedWatch tool showing no rate hikes priced for this year. This reversed earlier pricing for two hikes after the war began.
On the charts, USD/JPY turned bearish after breaking down from a symmetrical triangle on the four-hour timeframe. Price is below an ascending support line from 157.46, while the 200-period EMA near 158.40 is acting as resistance.
The 14-day RSI fell to 28, which is oversold. Resistance sits near 158.40 and around 159.00; a move above 159.00 would point to 159.60.
Support stands near 157.50, and a break below it would target 157.00. The technical section notes it was produced with help from an AI tool.
Macro And Strategy Implications
Last year, we saw the dollar weaken sharply against the yen when the US and Iran agreed to a temporary ceasefire, creating a “risk-on” mood. Now, in April 2026, we are seeing the opposite as renewed diplomatic friction in the region sends investors looking for safety. This is a classic “risk-off” scenario, which typically benefits the US Dollar.
A key driver then was the disappearance of Federal Reserve rate hike expectations due to easing global inflation. Today, however, the latest US Consumer Price Index (CPI) reading for March came in hot at 3.1%, pushing the odds of a June rate hike to over 65% according to the CME FedWatch tool. This hawkish shift is providing significant support for the dollar, especially against the yen.
This policy divergence is widening, as Japan’s own core inflation continues to miss its 2% target, suggesting the Bank of Japan will remain accommodative. The interest rate differential between the US and Japan is therefore set to expand further, making it attractive to hold dollars over yen. This fundamental backdrop strongly favors a higher USD/JPY exchange rate.
Given this shift to a “risk-off” environment where the US Dollar is a primary safe haven, the strategy has flipped from what we saw in 2025. We should consider buying call options on USD/JPY or selling put spreads to capitalize on expected upside while managing risk. These positions will profit if the pair continues to climb as we anticipate.
Unlike last year’s breakdown below 159.00, the pair is now testing resistance near 164.50. Any dips towards the 163.80 level should be viewed as buying opportunities, with a target of clearing the psychological 165.00 barrier in the coming weeks. Holding long positions is the preferred stance while this geopolitical and monetary policy dynamic persists.
The Cboe Volatility Index (VIX) has climbed back above 18, reflecting the market’s growing anxiety. This elevated volatility makes selling out-of-the-money puts more attractive, as the higher premium provides a better cushion if the pair pulls back temporarily. This strategy allows us to collect income while waiting for the next move higher.
