USD/JPY extends rally as Middle East conflict adds to Yen weakness
- Japanese Yen slides toward 158.00 as the Strait of Hormuz crisis and dovish BoJ board nominations weigh on sentiment.
- The BoJ held rates at 0.75% in January, with Governor Ueda keeping the March and April meetings "live" for a potential hike to 1%, though PM Takaichi's nomination of two dovish academics to the board has complicated the tightening timeline.
- US and Israeli strikes on Iran over the weekend triggered an effective closure of the Strait of Hormuz, sending oil prices sharply higher and boosting the US Dollar as a safe-haven bid, while Japan's heavy reliance on energy imports added further pressure on the Yen.
USD/JPY rose about 0.15% on Tuesday, pushing close to 157.60 as the pair continued to grind higher following last week's sharp rally. Price has been chopping in a wide range between about 152.00 and 159.00 since late January, with alternating large-bodied bullish and bearish candles pointing to a tug-of-war between opposing forces. The latest leg higher has carried the pair back into the upper half of that range after the early-February pullback toward the 153.00 area.
The escalating conflict in the Middle East has added a fresh layer of pressure on the Japanese Yen. The effective shutdown of the Strait of Hormuz, through which roughly 20% of the world's oil passes, has sent energy prices surging and hit Japan particularly hard, given its near-total dependence on imported fuel. Finance Minister Satsuki Katayama said authorities are monitoring the Yen's decline "with a strong sense of urgency" and are in close coordination with the US, keeping the threat of intervention on the table. On the monetary policy front, Bank of Japan (BoJ) board member Hajime Takata renewed his call for rate hikes last week, warning of an "inflation overshoot" risk, while Governor Kazuo Ueda described the March and April meetings as "live" for a potential move. However, PM Takaichi's nomination of two reflationist academics to the BoJ board and reports that she voiced reservations about further tightening during her meeting with Ueda have muddied the near-term outlook.
On the US Dollar side, the Federal Reserve (Fed) held rates at 3.50% to 3.75% in January, with the minutes showing several participants discussed the possibility of raising rates if inflation stays above target. The safe-haven bid into the Dollar following the Iran strikes has reinforced the extended pause, and markets see little prospect of a cut in the near term.
USD/JPY daily chart
Technical Analysis
In the daily chart, USD/JPY trades at 157.55. The near-term bias is bullish as price holds well above the rising 50-day and 200-day exponential moving averages, underscoring a firmly established uptrend despite the recent pullback from highs near 158.50. The rebound from the mid-152.00s has been accompanied by a strong recovery in the Stochastic, which pushes into overbought territory and confirms renewed upside momentum rather than exhaustion at this stage. As long as daily closes remain above the 50-day EMA cluster around 155.50, dips are likely to attract buyers within the broader bullish structure.
Initial resistance emerges at 158.50, the recent swing high that capped the latest advance, followed by the psychological 160.00 area if bulls extend the move. On the downside, immediate support aligns near 156.00, ahead of the 155.50 region where the 50-day EMA converges with prior consolidation, creating a key pivot for trend followers. A break below that zone would expose the next support around 154.00, but holding above it would keep focus on higher highs toward 158.50 and beyond.
(The technical analysis of this story was written with the help of an AI tool.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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