USD/JPY fell towards 158.30 on Wednesday as a two-week ceasefire between the US, Iran and Israel briefly lifted risk appetite. Reports of continued attacks and Israel’s plan to keep operating against Hezbollah in Lebanon point to ongoing instability.
The ceasefire was announced by US President Donald Trump on Truth Social and was linked to reopening the Strait of Hormuz, but the Strait remains closed. A senior Iranian official said it could reopen later this week, before a planned Washington–Tehran meeting in Islamabad, Pakistan.
Iran Terms Keep Risk Elevated
Iran has set out conditions including continuing nuclear enrichment, controlling and charging fees for Strait passage, full sanctions relief, a US military withdrawal from the region, and compensation for war damage. These terms lower the likelihood of a durable deal and keep geopolitical risk elevated.
On the four-hour chart, USD/JPY trades at 158.35 and stays below the 20-period SMA at 159.36 and the 100-period SMA at 159.23. The pair is also below 158.46, while RSI is 31.5, near oversold territory.
Resistance stands at 158.46, then 159.23 and 159.36. Support sits at 158.25, then 158.05 and 157.89, with a break below that area raising the chance of a deeper pullback.
The initial drop in USD/JPY toward 158.30 is a knee-jerk reaction to the ceasefire headline, but we see this as a temporary move. The market is pricing in the best-case scenario, ignoring the high probability of the agreement collapsing. This dip presents an opportunity to position for a reversal when risk aversion returns.
Volatility Strategy Outlook
Given the extreme demands from Iran and ongoing Israeli operations, the ceasefire is unlikely to last the full two weeks. We should therefore consider buying volatility, as the current calm is fragile. The Cboe/CME FX Yen Volatility Index (JYVIX) has only eased to 9.8 from its recent peak above 12, indicating the options market is still pricing in significant uncertainty ahead.
The continued closure of the Strait of Hormuz is the most critical factor, reminiscent of the supply chain shocks we saw in late 2025 which sent oil prices soaring. Data from last week showed global oil inventories falling by 3.1 million barrels, a trend that will accelerate if the strait remains blocked. This situation favors a stronger US dollar as a safe-haven currency.
Therefore, we believe traders should look at buying out-of-the-money USD/JPY call options expiring in late April or May. A move back above the 159.25 resistance seems highly probable once the market’s focus shifts from the ceasefire announcement to the lack of tangible progress. Using call spreads could be a cost-effective strategy to capitalize on the expected rebound.
