USD/JPY edged down to about 159.55 in Monday’s Asian session as the US Dollar dipped, while the US Dollar Index traded near 100.15. The move came as the Dollar stayed broadly firm amid US threats towards Iranian infrastructure if no deal is reached. Over the weekend, President Donald Trump posted on Truth.Social that Iran would face “hell” for power plants and bridges if Tehran does not reopen the Strait of Hormuz by Tuesday, April 7, 9:00 PM Eastern time. Rising Middle East tensions also supported demand for the Japanese Yen. Markets are also watching the US ISM Services PMI for March, due at 14:00 GMT. It is forecast at 55.0, down from 56.1 in February. Technically, USD/JPY remains in an ascending channel and trades above the 20-day exponential moving average near 158.90, with channel support around 158.10. The 14-day RSI is in the 40.00–60.00 zone. Resistance is seen at 160.45 and then near 161.00, with levels beyond 162.00 if 161.00 breaks. Support sits at 158.90 and 158.10, with a daily close below 158.10 pointing towards the mid-157.00s. The US Dollar is the most traded currency, making up over 88% of global FX turnover, or about $6.6 trillion a day in 2022. The Fed influences the Dollar via interest rates and tools such as QE and QT, with 2% as its inflation target. We are seeing the USD/JPY pair sitting at a high level around 159.55, but the situation is tense. Geopolitical threats against Iran are supporting the US Dollar, while also boosting the safe-haven appeal of the Japanese Yen, creating a two-way pull on the currency pair. Traders should be prepared for sudden moves as these opposing forces battle for dominance. The immediate focus must be on the April 7th deadline for Iran concerning the Strait of Hormuz. With such a significant event risk, we believe buying volatility through options, like a straddle, could be a prudent strategy to profit from a large price swing in either direction without having to guess the outcome. This is a classic binary event where the price could either surge on escalating conflict or drop on a peaceful resolution. Later today, the US ISM Services PMI data for March will be a key focus. A weaker number than the expected 55.0 could test immediate support for the pair near the 20-day moving average at 158.90. Conversely, a surprise to the upside would reinforce the dollar’s strength and likely push the pair toward the recent high of 160.45. The underlying strength in USD/JPY stems from the massive interest rate difference between the Federal Reserve and the Bank of Japan. We see the Fed holding rates firm around 5.25% to ensure the sticky inflation we saw through 2025 is fully contained, while the BoJ rate remains near 0.1%. This policy divergence continues to make holding US Dollars much more profitable than holding Japanese Yen. However, as we approach the 160-161 level, we must be extremely cautious of potential intervention by Japanese authorities to strengthen the Yen. We saw them take decisive action back in 2022 when the dollar became too strong, and verbal warnings have been increasing since the pair crossed 155 last year. This risk places a cap on how high the pair can go without a fight from the Bank of Japan. The bullish structure within the ascending channel remains valid for now, with key support at 158.10. We feel that while the trend is upward, the headline risks from Iran and potential central bank intervention are significant. A daily close below this channel floor would signal that the current bullish momentum has weakened considerably.

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