USD/JPY traded higher near 159.00 in early European trading on Monday. The Japanese Yen weakened as renewed US-Iran tensions and reports of the Strait of Hormuz being closed supported the US Dollar.
US President Donald Trump said on Sunday that US Marines took custody of a vessel that tried to pass an American blockade on Iranian ports, according to the Guardian. Iran’s Foreign Ministry spokesman Esmail Baghaei said the US blockade of Iran’s ports and coastline is an act of aggression that violates the ceasefire.
The ongoing dispute added support for the US Dollar in the near term. This kept USD/JPY in positive territory around 159.00.
Bank of Japan Governor Kazuo Ueda on Friday avoided pointing to an April rate rise, citing uncertainty from a “negative supply shock” linked to the war. Markets widely expect the Bank of Japan to keep rates unchanged until at least June 2026.
Japan’s officials also raised their monitoring of the exchange rate. Finance Minister Satsuki Katayama said Japan is watching markets with a “high sense of urgency” and may act against speculative moves.
Looking back at the situation in 2025, we can see the market was tense with USD/JPY pushing 159.00. The combination of US-Iran conflict and a hesitant Bank of Japan created a powerful upward force on the dollar. This was the environment where fears of currency intervention were at their peak.
Shortly after those warnings in 2025, Japanese authorities did step into the market when the pair briefly touched 160.20, an action that sent the pair tumbling five big figures in a single session. That intervention, costing a reported ¥9 trillion, set a new precedent for volatility and showed that verbal warnings would be backed by decisive action. We now see that event as the peak of the divergence trade, as underlying fundamentals have since started to shift.
Today, the geopolitical risk from Iran has subsided, but the focus has pivoted entirely to monetary policy. Japan’s latest core CPI reading came in at a stubborn 2.8%, well above the BoJ’s target, increasing pressure for the central bank to finally act. With the pair having crept back up to 156.50, the market is now pricing in a near-certain rate hike at the June 2026 meeting.
For derivative traders, this changes the game from anticipating sudden intervention to positioning for a planned policy shift. While buying out-of-the-money puts on USD/JPY was a good hedge against intervention in 2025, the strategy now should focus on the BoJ’s June meeting. We believe traders should look at buying options straddles or strangles expiring in late June to capture the significant volatility expected around that central bank decision.
