The Japanese yen has risen by over 0.7% against the US dollar. It has still trailed most other G10 currencies as the US dollar has weakened more broadly and risk mood has improved after a ceasefire.
A near-$20 per barrel fall in crude oil prices was linked to changes in Japan’s terms of trade. Lower oil prices can reduce Japan’s import costs and support the currency.
Yen Strength Builds On Improved Terms Of Trade
Japan’s labour cash earnings data was stronger than expected. This was associated with ongoing expectations of further Bank of Japan policy tightening.
For USD/JPY, the focus is on a pullback from the late January to March move. Targets mentioned are the 50-day moving average just above 157 and a January gap in the mid-155s.
The Japanese yen is finally showing some strength, gaining on the dollar as geopolitical tensions ease. However, we’ve seen other major currencies like the Aussie and Euro rally even harder against the greenback this week. This tells us the yen’s move is part of a broader risk-on mood following the recent ceasefire agreement.
A key driver for this shift is the significant drop in oil prices, which directly benefits Japan’s economy. With WTI crude falling from over $105 to near $87 a barrel in just a few days, the pressure on Japan’s trade balance is easing considerably. This sharp decline improves the outlook for the nation’s terms of trade almost overnight.
BoJ Tightening Expectations Support The Yen
Domestically, fundamentals are also lining up to support a stronger yen. The latest data for March showed labor cash earnings grew by 2.8%, beating expectations and signaling that inflation may become more self-sustaining. This puts more pressure on the Bank of Japan to continue its policy normalization, a stark contrast to their hesitant stance we saw through much of 2025.
For derivative traders, this environment suggests setting up for a further fall in the USD/JPY exchange rate. We should be considering strategies like buying JPY call options or USD put options to capitalize on this expected downward move. The current momentum appears strong enough to push the pair lower in the coming weeks.
Looking at the charts, we are targeting a retracement toward the 50-day moving average, which sits just above the 157 level. A break below that would open the door for a test of the gap in the mid-155s, which was left after suspected intervention back in January 2026. These levels represent the most logical next steps for the currency pair.
