USD/JPY moved in a tight range in the Asian session on Wednesday, trading near 159.30. This was just below a one-week high from the previous day, and the pair stayed within a range seen over the past month.
The yen remained weak amid concerns about energy supplies linked to disrupted shipping through the Strait of Hormuz. On Tuesday, US President Donald Trump said the US Navy blockade of Iranian ports would continue, and Iran’s military said it would not reopen the waterway while the blockade remains.
Expectations that the Bank of Japan will keep rates unchanged at its April meeting also weighed on the yen. Reuters reported on Tuesday, citing sources, that the BoJ may signal it could raise borrowing costs as soon as June due to rising inflation pressures, while fears of market intervention limited further yen declines.
The US dollar was held back by optimism after Trump announced an indefinite extension of the ceasefire with Iran, shortly before it was due to expire. A modest fall in crude oil prices eased inflation concerns, and lower expectations of a US Federal Reserve rate rise added pressure to the dollar, helping cap USD/JPY.
We recall this time last year, in 2025, when USD/JPY was stuck moving sideways around the 159.30 mark. The market was trapped between the possibility of Bank of Japan action and a hesitant US Federal Reserve. Now in April 2026, the pair has broken significantly higher, currently trading near 162.50 as the policy differences between the two central banks have widened.
The hints we saw in 2025 of the Bank of Japan eventually raising rates did lead to the end of their negative interest rate policy, but little else has followed. With Japan’s core inflation remaining persistent at 2.8% through February 2026, the single small rate hike has not been enough to support the yen. This continued cautious stance from the BoJ remains the primary reason for yen weakness.
The geopolitical landscape has also shifted from the specific US-Iran tensions of 2025, though global energy security remains a background concern for Japan. More importantly, the Federal Reserve has maintained its higher-for-longer interest rate stance, a sharp contrast to the dovish sentiment that was developing last year. The current interest rate differential between the US and Japan sits near 5%, providing a powerful incentive to favor the dollar.
Given this shift from a narrow range to a clear uptrend, strategies for derivative traders must adapt. Last year, selling options to collect premium in the stagnant market was a popular trade, but that is now a high-risk approach. We see increased value in buying options, such as long call spreads, to profit from continued upside while defining risk.
However, the threat of direct intervention from Japanese authorities to strengthen the yen, which was a concern in 2025, is now extremely high. To manage this risk of a sudden, sharp drop, traders should consider buying out-of-the-money put options. This acts as a form of insurance, allowing one to stay in a bullish trade while protecting against a severe reversal caused by government action.
