USD/JPY traded flat near 159.00 in Thursday’s Asian session as markets waited for new information on US–Iran talks. President Donald Trump said the discussions were in the “final stages”.
The US Dollar Index was slightly higher near 99.20 after reaching a six-week high of 99.47 on Wednesday. Movement in the index paused after Trump said a deal could be finalised soon.
Usd Jpy Holds Near Key Level
Expectations for Federal Reserve rate rises eased after oil prices fell. CME FedWatch showed the chance of at least one rate rise this year at 51%, down from 61.3% on Tuesday.
In Japan, an extra budget announced by Prime Minister Sanae Takaichi raised concerns about public finances. The 10-year Japan Government Bond yield rose 0.11% to about 2.77%, close to 2.81% set on Tuesday.
Technically, USD/JPY stayed above the 20-day EMA at 158.37, with RSI near 55. Support sits at 158.37, then 157.31, while resistance is seen at 160.73.
Looking back at the situation in mid-2025, the market was clearly paused, waiting for a catalyst from the US-Iran negotiations. The USD/JPY was stuck around the 159.00 level, creating a tense balance between potential US dollar weakness from a peace deal and underlying yen weakness. This setup presented a clear binary event, ideal for options strategies over the next few weeks.
Options Strategies Around Geopolitical Catalyst
If a deal were to be announced, we would expect a risk-on sentiment to surge, causing the dollar to weaken as safe-haven demand evaporates. We saw this happen in the past; for instance, after initial de-escalation announcements in other geopolitical conflicts, the Dollar Index (DXY) often saw pullbacks of 1-2% within a week. Therefore, buying USD/JPY put options with a strike price below the 158.37 support level would have been a prudent way to position for a successful diplomatic outcome.
Conversely, a collapse in talks would have likely sent the pair soaring as focus shifted back to Fed rate hikes and safe-haven flows into the dollar. This “no deal” scenario would have probably targeted the April 2025 high near 160.73, making USD/JPY call options an effective tool to capture that upside. The VIX index, a measure of market volatility, was hovering around 19 at the time, a relatively moderate level that suggested option premiums were not yet prohibitively expensive for such a strategy.
We must also remember the significant pressure on the yen at that time, which complicates a simple risk-off trade. The 10-year JGB yield pushing towards 2.80% in May 2025 reflected deep market concern over Japan’s fiscal health, which was a persistent source of yen weakness. This underlying JPY weakness could have acted as a floor for the currency pair, potentially limiting the downside even if a peace deal materialized.
Given the uncertainty, a volatility play such as a long straddle, buying both a call and a put option with the same strike price and expiry date, would have been a logical response. This would profit from a significant price move in either direction once the Iran news broke, removing the need to correctly guess the outcome. Historical data from similar geopolitical standoffs shows that currency pairs can move 200-300 pips in a single session following a major announcement.
