USD/JPY extended a late rebound from the mid-155.00s, described as a two-month low, and rose in the Asian session on Friday. It reached about 157.25.
The yen weakened again after earlier reaction to verbal intervention from Japanese officials. Middle East tensions added concerns about energy supply disruption through the Strait of Hormuz, alongside reports the US is considering new military strikes on Iran.
Japan Inflation Miss And Boj Outlook
Tokyo consumer inflation missed forecasts across all April measures and stayed below the Bank of Japan’s 2% target for a third month. This supported expectations the BoJ may pause, despite earlier signals around a June rate rise, even as Japan’s Manufacturing PMI rose to its highest level since January 2022.
A firmer US dollar also supported the pair after the Federal Reserve kept its policy rate at 3.50%–3.75% on Wednesday. The decision had three dissents, the most since 1992, and Q1 2026 US GDP grew at a 2.0% annualised pace versus 0.5% in the prior quarter.
US inflation accelerated in March due to higher oil prices, adding to expectations rates may stay unchanged into next year. Markets are awaiting the US ISM Manufacturing PMI.
With the US Federal Reserve signaling rates will stay elevated and the US economy growing a solid 2.0% last quarter, the dollar’s strength looks set to continue. We are seeing a clear policy split with Japan, where inflation remains stubbornly below the Bank of Japan’s 2% target. This fundamental divergence suggests we should position for a higher USD/JPY exchange rate in the coming weeks.
Derivatives And Positioning Strategies
The yen’s weakness is being compounded by real economic fears, especially with new tensions surrounding the Strait of Hormuz. We saw how oil supply disruptions in 2025 impacted Japan’s economy, and with Tokyo’s April inflation coming in at a disappointing 1.6%, the central bank has little incentive to raise rates. This makes the yen an unattractive currency to hold right now.
Looking at the derivatives market, the path of least resistance for USD/JPY appears to be upward. We believe buying call options with strike prices approaching the 160.00 level is a straightforward strategy to capitalize on this momentum. We remember the sharp interventions when the pair crossed this mark back in 2024, but the current strength in US economic data presents a much stronger case for a sustained break higher this time.
Futures markets are reinforcing this view, now pricing in almost no chance of a Fed rate cut until early 2027. This solidifies the significant yield advantage of holding US dollars over Japanese yen. For traders looking for a more defined-risk approach, a bull call spread could be an effective way to target a move toward 159.50 while capping potential losses.
We should also monitor implied volatility, which has been creeping up due to the geopolitical headlines and fears of intervention. This makes selling out-of-the-money put options an attractive strategy to collect premium. A strike price around the recent low of 155.50 could provide a buffer, profiting if the pair moves up, sideways, or only slightly down.
