The USD/JPY pair extended its upward trajectory during Friday's Asian trading session, hovering around 159.80 and reaching its highest level in nearly two weeks. The pair has recorded gains for five consecutive trading days and is poised for a significant weekly increase, indicating a prevailing bullish market sentiment.
The primary catalyst for the rally stems from heightened uncertainty in the Middle East. Escalating conflicts around the Strait of Hormuz have increased risks to shipping security, posing potential disruptions to global energy supplies. As a major energy importer heavily reliant on this passage, Japan faces direct economic impacts from constrained energy supplies, which in turn weighs on the yen.
Concurrently, the US dollar continues to strengthen, supported by safe-haven demand and policy expectations. Market confidence remains low regarding a long-term agreement between the US and Iran, compounded by sustained US maritime restrictions against Iran, keeping geopolitical risks elevated. In this environment, the US dollar is attracting inflows as a safe-haven asset, providing upward momentum for USD/JPY.
Domestically in Japan, although inflation has shown signs of recovery, it remains insufficient to prompt a policy shift. Data reveals Japan's March CPI rose 1.5% year-on-year, with core CPI reaching 1.8%, both still below the Bank of Japan's 2% target. However, the core indicator excluding energy rose to 2.4%, indicating some persistence in price pressures that theoretically supports the possibility of future policy adjustments.
Nevertheless, the market widely expects the Bank of Japan to maintain interest rates unchanged in the near term, a policy outlook that continues to suppress the yen. In contrast, the US economy demonstrates robust performance, and market expectations for Federal Reserve rate cuts have diminished, allowing the dollar to maintain its interest rate advantage. This policy divergence is a significant factor driving the USD/JPY rally.
It is important to note that expectations for potential intervention by Japanese authorities are mounting. As the exchange rate approaches the 160 level, market vigilance over official action to stabilize the currency is increasing, which may limit further upside potential for the pair.
From a technical perspective, on the daily chart, USD/JPY continues to trade within a high range with an overall bullish structure, though it has not yet decisively broken above the upper boundary of its previous consolidation range. The key resistance level is at the 160.00 psychological barrier; a break above this level could open the path for further gains. Immediate support is seen near 158.50, coinciding with the short-term moving average. Momentum indicators suggest bullish forces remain dominant but are approaching overbought territory. On the 4-hour chart, the pair maintains an ascending channel formation, with near-term support around 159.00. A break below this level could lead to a test of the 158.00 area, while sustained stability above it may allow for another attempt to challenge the 160.00 mark.
In summary, the current USD/JPY movement is driven by a combination of geopolitical risks, energy prices, and monetary policy divergence. Middle East tensions pose potential shocks to the Japanese economy, amplifying yen depreciation pressures, while the US dollar remains strong due to safe-haven demand and interest rate advantages. However, as the pair nears a key psychological level, heightened expectations of intervention by Japanese authorities may constrain short-term movements. The future direction of the exchange rate will depend on developments in the geopolitical landscape and shifts in policy signals, with market volatility expected to remain elevated.