USD/JPY steadies as Middle East tensions offset softer yields

• Safe-haven demand tied to Strait of Hormuz risk keeps the US Dollar supported.
• Falling long-tenure US Treasury yields cap upside momentum, keeping gains in check.
• BoJ’s cautious stance continues to weigh on the Yen, sustaining upside bias.

The USD/JPY climbed near the 159.30 price region on Wednesday, consolidating around recent highs as markets digest fresh developments in the Middle East and shift monetary policy expectations.

Recent headlines from the Middle East are once again influencing foreign exchange flows. Reports of new attacks on ships in the Strait of Hormuz have increased demand for safe-haven assets like the US Dollar (USD), helping it regain strength after earlier weakness. However, the market response has not been entirely consistent as alternating reports of ceasefires and ongoing uncertainty continue to cause sharp intraday fluctuations in sentiment.

Simultaneously, US Treasury yields have decreased, limiting the Greenback’s upward momentum and preventing a stronger breakout in the USD/JPY pair.

On the Japanese side, the Yen remains structurally weak. The Bank of Japan (BoJ) continues to express caution, with policymakers refraining from making any firm commitments to near-term rate hikes. This has delayed expectations for tightening and maintains favorable yield differentials for the US Dollar.

Short-term technical analysis:

On the four-hour chart, USD/JPY trades at 159.27. The pair holds a mild bullish bias as it trades above both the 20-period and 100-period Simple Moving Averages (SMAs), with the former at 159.01 and the latter at 159.15. This suggests an underlying bid on dips. The Relative Strength Index (RSI) around 55 leans slightly positive without signaling overbought conditions, hinting that buyers retain control but lack strong momentum for an immediate breakout.

On the topside, initial resistance is aligned at 159.37, where a horizontal barrier caps further gains in the near term. On the downside, immediate support is seen at 159.25, with additional layers of demand at 159.20 and near the 100-period SMA at 159.15, followed by 159.12 and the 20-period SMA at 159.01. A sustained break below this stacked support area would weaken the constructive tone, while a clear move above 159.37 would open the way for a more decisive bullish extension.

(The technical analysis of this story was written with the help of an AI tool.)