USD/JPY rose for a third day, trading near 159.80 in Asian hours on Monday. The move followed US Dollar demand linked to safe-haven flows after US–Iran talks ended without a deal after 21 hours of negotiations in Islamabad.
US Vice President JD Vance confirmed the talks ended without an agreement. US President Donald Trump said the US would begin “blockading” ships entering or leaving the Strait of Hormuz.
Geopolitical Risk Drives Dollar Demand
US Central Command said forces will start blockading maritime traffic entering and exiting Iranian ports at 10 AM ET (14:00 GMT) on Monday. Iran’s Parliament Speaker Mohammad Bagher Ghalibaf said the US did not gain the Iranian delegation’s trust, and the decision now rests with Washington.
Iran’s Revolutionary Guard warned that military vessels approaching the Strait of Hormuz would violate the ceasefire and face a decisive response. Markets are also focused on the Bank of Japan’s April 27–28 meeting, where policymakers will review whether higher global energy and commodity prices support a rate rise.
The Sakura Report said board members weighed inflation risks against growth risks after the April 6 branch managers’ meeting. It added that all nine regions described their economies as “recovering moderately”, “picking up”, or “picking up moderately”.
With US-Iran talks breaking down and a blockade of the Strait of Hormuz beginning today, we should anticipate a surge in market volatility. The immediate flight to safety is strengthening the US Dollar, pushing USD/JPY towards the critical 160.00 level. Traders should consider buying near-term USD/JPY call options to capitalize on this momentum while being mindful that we saw Japanese authorities intervene around these levels back in late 2024.
Positioning For Oil Volatility
The blockade directly threatens global energy supplies, as nearly a fifth of the world’s oil consumption passes through the Strait of Hormuz. This is a clear signal to go long on crude oil derivatives, such as WTI or Brent futures, anticipating a sharp price spike similar to the one we witnessed in 2022 that sent prices over $120 a barrel. Call options on oil-related ETFs also provide a defined-risk way to profit from the expected supply shock.
This level of geopolitical tension will almost certainly cause the CBOE Volatility Index (VIX) to rise from its current subdued level around 18. We believe purchasing VIX call options with strike prices in the 25-30 range is a prudent hedge against a broader market sell-off. Such a strategy would protect portfolios from the rising uncertainty affecting global equities.
The upcoming Bank of Japan meeting at the end of April is now a major focal point, as soaring energy costs will pressure policymakers intensely. The sudden inflation from oil complicates their decision, potentially forcing a hawkish turn to protect the yen. While the immediate trend favors a weaker yen, we could look at longer-dated JPY call options as a contrarian play on the BoJ being forced to act more decisively than the market currently expects.
