The USD/JPY pair looks to build on the previous day’s bounce from sub-159.00 levels, or a one-week low, and climbs back closer to the overnight swing high during the first half of the European session on Wednesday. Spot prices, however, remain below the 160.00 psychological mark and within a familiar range held over the past month or so amid mixed fundamental cues.
Despite the Bank of Japan’s (BoJ) hawkish pause, the Japanese Yen (JPY) continues with its relative underperformance amid economic concerns stemming from Middle East tensions. Furthermore, the US-Iran stalemate benefits the US Dollar’s (USD) reserve currency status and acts as a tailwind for the USD/JPY pair. However, intervention fears help limit JPY losses and cap the upside as traders await the key FOMC policy update for a fresh directional impetus.
Hopes for diplomatic efforts to end the Iran war faded over the weekend after US President Donald Trump canceled his special envoy’s planned visit to Pakistan. Adding to this, media reports suggested that Trump is dissatisfied with Iran’s new proposal on ending the conflict and reopening the Strait of Hormuz, while setting aside discussion on the nuclear program. This, in turn, keeps geopolitical risks in play, underpinning the safe-haven buck and the USD/JPY pair.
Meanwhile, traffic through the Strait of Hormuz has seen a sharp decline recently due to Iran’s restrictions on movements and the US naval blockade of Iranian ports. Moreover, the Wall Street Journal reported that Trump instructed aides to prepare for an extended blockade of Iran. This, in turn, pushes Crude Oil prices higher for the third straight day, to a nearly three-week high, and revives inflation fears, bolstering bets for a more hawkish Fed and further boosting the USD.
Given that Japan depends on energy imports from the Middle East, the continued disruption of supplies through the strategic waterway adds to worries that the economy will come under strain in the foreseeable future. This, in turn, suggests that the path of least resistance for the JPY is to the downside and backs the case for a further USD/JPY appreciation. Bulls, however, might refrain from placing aggressive bets ahead of the highly anticipated central bank event risk.
USD/JPY daily chart
Technical Analysis:
Barring a few knee-jerk reactions, spot prices have been oscillating in a familiar band over the past one-and-a-half months or so. This might still be categorized as a bullish consolidation phase against the backdrop of the recent solid rebound from the 200-day Exponential Moving Average (EMA) touched in February and validates the positive outlook for the USD/JPY pair.
Meanwhile, the Relative Strength Index (RSI) around 57 suggests moderate upside momentum. However, the Moving Average Convergence Divergence (MACD) line is lingering just below the zero line, hinting that bulls may be advancing but without strong conviction. Hence, it will be prudent to wait for a sustained strength above 160.00 before positioning for further gains.
On the downside, initial support emerges around 159.60 ahead of the 159.00 mark and the 158.50-158.45 horizontal zone, with stronger underlying demand seen at the lower boundary of the trading range below 158.00. A daily close back under the latter would weaken the bullish structure, whereas holding above it should keep the broader uptrend intact.
(The technical analysis of this story was written with the help of an AI tool.)
