USD/JPY traded near 156.40 with little change, as reports said the US and Iran were moving closer to a deal to end a conflict lasting more than two months. This reduced fears of disruption in the Strait of Hormuz, pushed Oil prices lower, weakened the US Dollar, and supported the Japanese Yen.
Bank of Japan meeting minutes released on Thursday showed policymakers discussed further rate rises if an energy shock linked to a Hormuz closure lifts inflation. Board members noted that persistently high Oil prices and a weaker Yen could lead to tighter policy.
Us Data And Market Reaction
In the US, initial jobless claims rose to 200K for the week ending 2 May from 190K, below expectations of 205K to 206K. Continuing claims fell to 1.766 million, pointing to low layoffs.
On the four-hour chart, USD/JPY was 156.26, below the 20-period SMA at 156.93 and the 100-period SMA at 158.53, with RSI near 39. Resistance levels were 156.44 and 156.54, then 156.93 and 158.53, while support sat at 156.17 and 156.04.
The technical analysis section was produced with help from an AI tool.
We are seeing a very different picture today compared to the one from this time last year. Easing Mideast tensions were a key factor then, but now, sustained conflict in key shipping lanes has pushed Brent crude oil prices above $90 a barrel. This reality continues to weigh heavily on the energy-importing Japanese Yen, providing underlying support for a higher USD/JPY.
Policy Divergence And Forward Risks
The hawkish Bank of Japan chatter we saw in 2025 resulted in only one minor rate adjustment and verbal interventions that have had a fading impact. Japan’s latest quarterly GDP figures showed an annualized growth of just 0.4%, giving the central bank very little room to tighten policy further. This persistent policy divergence with the US is the main reason the pair has climbed from the 156s to today’s level around 162.80.
In the United States, the labor market is no longer as tight as it was a year ago. The most recent weekly Initial Jobless Claims data showed 231,000 new claims, which is significantly higher than the 200K level reported in May 2025. This gradual loosening suggests the Federal Reserve has no reason to become more hawkish, potentially capping the US Dollar’s upside from here.
Given these overbought conditions, we should consider buying out-of-the-money puts on USD/JPY, or call options on the JPY, as a low-cost way to position for a sharp correction. Volatility remains low, making options relatively cheap, and any surprise intervention from Japanese authorities could lead to a rapid move downward. This strategy allows us to define our risk while gaining exposure to a potential drop.
From a technical standpoint, the daily Relative Strength Index (RSI) is now sitting above 70, signaling that the current upward trend is becoming exhausted. We should be cautious about adding new long positions at these elevated levels. A break below the 161.50 support level could be a key signal that sellers are regaining control for a move back towards the 159.00-160.00 zone.
