USD/JPY eased to about 159.35 in Asian trade on Thursday, with the US Dollar softer against the Japanese Yen. The preliminary S&P Global PMI data are due later on Thursday.
US President Donald Trump said on Tuesday he is extending the ceasefire with Iran while awaiting a “unified proposal” from Tehran. Iran said it would not reopen the Strait of Hormuz despite a US naval blockade, and the White House said Iran’s claim of seizing two ships there was not seen as a ceasefire breach.
Lebanon is set to seek a one-month extension of its truce with Israel in meetings in Washington on Thursday. Lebanon–Israel talks on 14 April were the first in decades, and the US later announced a 10-day truce that is due to end on Sunday.
Bank of Japan Governor Kazuo Ueda did not point to an April rate rise, citing economic uncertainty from a “negative supply shock” linked to the war. Markets broadly expect the BoJ to keep rates unchanged until at least June 2026.
According to Reuters, markets are pricing a 72%–77% chance of a rate rise in May. They also imply close to a 99% chance of a rise by June.
We see the USD/JPY pair easing to 159.35 due to the Iran ceasefire extension, which reduces safe-haven demand for the dollar. However, this dip might be a temporary reaction in what remains a larger uptrend. This provides a potentially interesting entry point for those betting on continued dollar strength.
Continued tensions, like Iran’s stance on the Strait of Hormuz and the fragile Lebanon-Israel truce, mean we should expect sudden price swings. We saw similar spikes in currency volatility in late 2023 when Mideast conflicts intensified, pushing the Cboe Volatility Index (VIX) above 20. This environment suggests that using options to trade on or hedge against sharp, unexpected moves could be a prudent strategy.
The key driver remains the massive interest rate gap between the US and Japan. With the market pricing in a 99% chance of a US Federal Reserve hike by June while the Bank of Japan waits, the differential could widen past 5.5 percentage points. Historically, a gap this wide has consistently fueled a stronger dollar against the yen, creating a powerful incentive for carry trades.
Implied volatility for USD/JPY options will likely stay elevated above the 10-12% range we saw for much of last year due to these geopolitical risks. Thursday’s US S&P Global PMI data will be the next key test for the US economy’s strength. A strong reading would reinforce the Federal Reserve’s hawkish stance and likely send the pair higher.
Given the strong underlying support from central bank policy, selling out-of-the-money puts on USD/JPY for the coming weeks looks attractive. This strategy allows us to collect premium by betting that the pair will not fall significantly below current levels. The rate differential acts as a strong floor against any major JPY strength, making sharp sell-offs less likely to last.
We should remember the lessons from the 2022-2024 period, where geopolitical scares caused temporary dips but the overwhelming policy divergence ultimately drove the pair much higher. Interventions by Japanese authorities back in 2022 near the 151 level only provided better entry points for long-term buyers. We could be seeing a similar pattern developing now as the pair approaches the 160 mark.
