FUNDAMENTAL OVERVIEW
USD:
The US dollar has been broadly supported this week amid heightened tensions in the Strait of Hormuz as the US and Iran continue to exchange strikes. Despite widespread expectations for an imminent deal and the reopening of the strait, no official agreement has materialized. There has been considerable noise from both sides, with neither showing a clear willingness to compromise.
For traders, the most consequential development remains whether the Strait of Hormuz reopens. With the June FOMC meeting approaching, and following Fed Governor Waller's speech last week, it is now widely anticipated that the Federal Reserve will abandon its easing bias. If conditions remain unchanged before that meeting, the decision could prove more hawkish than markets currently expect — a development that would reverberate across financial markets.
In the short term, a resolution and reopening of the Strait would likely weigh on the US dollar, as falling oil prices would fuel increased rate-cut expectations. However, if the Strait remains closed for an extended period and oil prices stay elevated, the risk grows that the Fed could be forced to raise rates regardless.
JPY:
On the Japanese yen side, little has changed fundamentally. The macro backdrop remains negative for the yen, with below-target inflation and economic headwinds stemming from the ongoing US-Iran situation. As a reminder, the Bank of Japan left interest rates unchanged at 0.75% at its most recent meeting, as widely expected. The notable element of that decision was not the three dissenters who voted for a rate hike, but rather Governor Ueda's shift toward a less hawkish tone. He indicated that the BoJ expects underlying inflation to be around 2% from the second half of 2026, while acknowledging uncertainty about how many months it would take to gauge the timing of the next rate hike. This stance is likely to continue weighing on the yen despite any intervention efforts. Overall, the bias for the Japanese yen remains bearish.
USD/JPY TECHNICAL ANALYSIS — DAILY TIMEFRAME
On the daily chart, USD/JPY has broken out of its consolidation around the 159.00 handle, opening the door for a potential rally toward the 162.00 level. Should the pair pull back into the 158.00 support zone, buyers are expected to step in with a defined risk below that support level in order to push toward new highs. Sellers, on the other hand, will be watching for a break lower to position for a drop toward the major upward trendline.
USD/JPY TECHNICAL ANALYSIS — 4 HOUR TIMEFRAME
On the 4-hour chart, the breakout from the consolidation around the 159.00 handle is more clearly visible. The price is currently pulling back and may retest the broken resistance — now acting as support — around the 159.30 level. Buyers are expected to step in at that zone with a defined risk below the support to continue pushing toward new highs. Sellers, meanwhile, will be looking for the price to fall back below that support level before positioning for a drop toward 158.60.
USD/JPY TECHNICAL ANALYSIS — 1 HOUR TIMEFRAME
On the 1-hour chart, the setup is largely consistent with the higher timeframes. Buyers will have a more favorable risk-to-reward entry around the support level, while sellers will need to see a confirmed break below it before targeting an extension of the pullback toward 158.60. The red lines on the chart define the average daily range for the current session.
UPCOMING CATALYSTS
Today's economic calendar includes the latest US Jobless Claims figures and the US PCE price index. The week concludes tomorrow with the release of Tokyo CPI data.
Why it matters
The Strait of Hormuz carries a significant share of global oil exports, meaning its closure directly affects energy prices — and elevated oil prices feed into inflation data that the Fed monitors when setting policy, creating a feedback loop between geopolitical events and US interest rate decisions.
Governor Ueda's signal that underlying Japanese inflation is not expected to reach 2% until the second half of 2026 sets a concrete timeline that limits the Bank of Japan's near-term flexibility to raise rates, which is structurally relevant for yen-denominated positions regardless of short-term price moves.
The convergence of a potentially hawkish Fed pivot and a dovish BoJ posture means the interest-rate differential between the two economies could widen further — the key mechanical driver behind USD/JPY directional moves.
