USD/JPY rose about 0.15% on Tuesday to near 157.60, extending last week’s rally. Since late January it has traded in a wide 152.00–159.00 range, after an early-February dip towards 153.00. Conflict in the Middle East has weighed on the Yen after the Strait of Hormuz was effectively shut, a route carrying roughly 20% of the world’s oil. Higher energy prices have hit Japan, which is almost fully dependent on imported fuel.

Policy Signals And Intervention Watch

Finance Minister Satsuki Katayama said officials are watching the Yen’s fall “with a strong sense of urgency” and are coordinating with the US, leaving intervention as an option. At the Bank of Japan, Hajime Takata again called for rate rises, and Kazuo Ueda said the March and April meetings are “live”, while board nominations and reports of caution have clouded timing. In the US, the Federal Reserve held rates at 3.50% to 3.75% in January, and minutes showed some discussed further rises if inflation stays above target. Demand for the Dollar as a safer asset has supported the currency and reduced expectations of near-term cuts. Technically, the pair trades near 157.55, above the 50-day and 200-day EMAs, with resistance at 158.50 and 160.00, and support at 156.00, 155.50, and 154.00. Looking back to early 2025, we saw the market grappling with USD/JPY pushing towards 158, driven by Middle East conflict and a hawkish Federal Reserve. That environment has now reversed, creating a different set of opportunities for the coming weeks. The fundamental drivers that supported the dollar throughout last year have significantly weakened.

Shift In The Macro Backdrop

The geopolitical risk premium that pressured the yen has unwound since the diplomatic resolution in the Strait of Hormuz in the third quarter of 2025. Consequently, oil prices, which spiked to over $100 per barrel during that period, have since stabilized and now average around $78, easing Japan’s import costs. This removes a key headwind for the yen that was prominent this time last year. The Bank of Japan has also shifted from talk to action, delivering two small rate hikes in the second half of 2025 to bring the policy rate to 0.25%. With Tokyo’s core inflation for February coming in at a persistent 2.5%, the market is now pricing in a more aggressive tightening path than previously expected. This monetary policy convergence is the most important factor now providing strength to the yen. Meanwhile, the Federal Reserve has pivoted from its firm stance in early 2025, initiating a rate-cutting cycle in November after US jobless claims rose for three straight months. Fed funds futures are currently pricing in an 80% chance of another 25-basis-point cut this month as the US economy shows clear signs of slowing. This growing interest rate differential in favor of the yen puts sustained downward pressure on the USD/JPY pair. Given this backdrop, we should treat any strength in USD/JPY as an opportunity to establish bearish positions. Buying out-of-the-money puts with expiries in the second quarter allows for positioning for a potential move towards the 142 level. This strategy offers a defined-risk way to capitalize on the shifting fundamental landscape we are now witnessing. Create your live VT Markets account and start trading now.

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