USD/JPY met selling pressure in the Asian session on Friday, ending a three-day rise and slipping back from the 159.40–159.45 year-to-date high. It fell to around 159.00, with limited follow-through on the downside. The yen moved back to levels that prompted rate checks in January, raising talk of official action to slow further weakness. This weighed on USD/JPY alongside a modest dip in the US dollar, though a larger fall in the pair has not developed.

Energy Prices And Boj Constraints

Japan’s reliance on energy means higher crude oil prices could lift consumer prices and weigh on growth. This could complicate the Bank of Japan’s move away from easy policy and reduce demand for the yen, supporting USD/JPY. The US dollar has also been supported by fewer expectations for near-term Federal Reserve rate cuts. Middle East tensions and the closure of the Strait of Hormuz have kept oil prices high, adding to inflation risks that could delay US rate cuts and underpin USD/JPY. Markets are waiting for the US Personal Consumption Expenditures (PCE) Price Index later today for guidance on rate policy. Despite the pullback, USD/JPY is still set for a fourth straight weekly gain. The current pressure we are seeing on the yen feels familiar, especially as USD/JPY tests the 165.00 level. This situation brings back memories of last year when similar levels around 159.00 prompted rate checks from Japanese authorities. Given the risk of intervention, buying spot is dangerous, but the fundamental weakness of the yen persists.

Positioning And Options Strategy

This weakness is largely because the Bank of Japan’s hands are tied, a problem we also saw in 2025. Japan’s latest core inflation figures are still hovering at 2.5%, well above the target, which complicates any policy moves. The stagflationary threat from rising energy costs remains a key factor preventing traders from making aggressive bets on a stronger yen. On the other side, the US Dollar remains supported as hopes for further Federal Reserve rate cuts this year fade. After a few initial cuts, persistent inflation has led markets, as reflected by the CME FedWatch Tool, to price in a less than 20% chance of a rate cut in the next meeting. This interest rate difference between the US and Japan continues to act as a strong tailwind for the USD/JPY pair. For derivative traders, this environment suggests buying call options on USD/JPY to capture further upside while capping potential losses from a surprise intervention. The defined risk of an options contract is preferable to the unlimited risk of a short yen position if the Ministry of Finance suddenly steps in. We should pay close attention to rising implied volatility, as it signals the market’s growing fear of such an event. Furthermore, the recent climb in WTI crude oil prices back to $85 a barrel mirrors the energy price surge we observed last year. As an energy-dependent nation, this puts direct pressure on Japan’s economy and its currency. This reinforces the core view that any dips in USD/JPY are likely to be short-lived and viewed as buying opportunities. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account