USD/JPY edged higher on Wednesday, with the yen weakened by a firmer US dollar and rising oil prices linked to the Middle East war. Japan’s reliance on imported energy added to the pressure on the yen.
The pair traded near 157.87, up for a third day, as hotter US inflation data increased expectations of a Federal Reserve rate rise by year-end. Uncertainty around US–Iran talks also supported demand for the dollar.
The US Dollar Index was around 98.50, its highest in more than a week. After a sell-off near the 160.00 level, buying interest has started to return.
USD/JPY stayed above the 100-day SMA near 157.40 and the 200-day SMA around 154.47. The daily RSI rebounded to about 48, while the MACD remained negative but showed stabilising signals.
Resistance sits at 158.00 and then 160.73, while support is seen at 157.40 and 154.47. Inflation is tracked through headline and core measures, and central banks often aim for about 2%.
CPI tracks price changes over time on MoM and YoY bases, with core CPI excluding food and fuel. Higher inflation often leads to higher rates and a stronger currency, while higher rates tend to weigh on gold by raising the cost of holding it.
The US dollar remains strong against the yen, partly because of rising oil prices linked to the conflict in the Middle East, which hurts Japan’s energy-importing economy. Recent US inflation data for April 2026 came in hotter than expected at 3.6% year-over-year, reinforcing the idea that the Federal Reserve may have to keep interest rates high. The Bank of Japan, by contrast, has shown no sign of moving away from its ultra-low rate policy.
This gap in central bank policy is the core of the trade, as the market is now pricing in about a 40% chance of another Fed rate hike by the end of this year. We remember how in late 2025 the market thought the Fed was finished with hikes, but persistent inflation has changed that view. The wide interest rate difference between the US and Japan continues to make holding dollars far more attractive than holding yen.
Given the risk of another sudden intervention by Japanese authorities, similar to the sell-offs we witnessed in 2025 when the price neared 160.00, buying call options on USD/JPY is a prudent strategy. This allows us to profit from a potential move upwards towards the 160.73 resistance level. Most importantly, it clearly defines our maximum risk, limiting any potential loss to the premium paid for the options.
To lower the upfront cost, we could structure this as a bull call spread by buying calls with a strike price near 158.00 and simultaneously selling calls with a strike around 160.00. This strategy is designed to profit from a gradual upward move in the coming weeks. It offers protection against the kind of sharp, intervention-driven reversal that can wipe out other types of positions.
We should keep a close eye on key technical levels for managing the position. A sustained move above the 158.00 barrier would serve as a bullish confirmation. Conversely, a drop below the 100-day moving average, currently around 157.40, would suggest the upward momentum is fading and that we should re-evaluate our bullish stance.
