USD/JPY is currently consolidating near 157.60 on Tuesday, March 10, 2026 — a notable decline from Monday’s intraday high of 158.90 following President Trump’s remarks that the Iran war is “very complete, pretty much” and could conclude “very soon.” The aforementioned statement catalyzed a total shift in the prevailing strategy of “sell Asia, buy America,” which had been the leading positioning narrative since the commencement of US and Israeli strikes on February 28. The DXY, which had surged to 99.70 on Monday — its highest level in more than three months — pulled back to 99.63 by Tuesday’s European session and was trading closer to 98.90 by the time New York opened, reflecting the rapid unwind of the geopolitical risk premium that had been the dollar’s primary fuel for eleven straight days. However, the issue with Tuesday’s movement is that Trump’s statements did not lead to the reopening of the Strait of Hormuz. The LNG export hub has not been restarted. The oil tanker that was destroyed in the Gulf of Oman this week has not been refloated. The Iranian government has clearly articulated its stance against permitting oil shipments through Hormuz while US and Israeli strikes persist. Defense Secretary Hegseth, in remarks made Tuesday morning, characterized the latest strikes as the “most intense” of the ongoing campaign. The disparity between the president’s statements on camera and the current situation in the Gulf represents a significant risk inherent in every USD/JPY position at this moment.
Among the G7 economies, Japan stands out with the highest direct exposure to potential disruptions in Gulf oil supply, and the statistics clearly highlight this vulnerability in concrete terms rather than as a mere hypothesis. Japan relies on the Middle East for 90-95% of its crude oil imports, with around 70% of these shipments passing through the Strait of Hormuz en route to Japanese refineries. Following the surge of Brent crude to $120 per barrel due to the escalation of conflict, Nomura Research Institute conducted an analysis of the economic repercussions: maintaining oil prices at that level would lead to a decrease in Japan’s GDP growth by 0.47 percentage points and an increase in inflation by 0.83 percentage points. These are not mere rounding errors — they represent quarter-point GDP impacts and near-full-percentage-point inflation increases occurring concurrently in an economy that is already managing the most sensitive monetary policy shift in decades. Japan’s Q4 GDP registered a growth of +0.3% QoQ, aligning with expectations and showing an improvement from +0.1% in the previous quarter. The annualized growth stood at 1.3%, surpassing the forecast of 1.2% and marking a significant acceleration from the prior annualized reading of 0.2%. On paper, Japan’s economy reached this crisis in a relatively stable condition. The issue at hand is that $120 Brent represents a level that the Japanese economy is fundamentally unable to withstand without significant repercussions. Moreover, the recent decline of Brent to the mid-$80s, driven by optimism surrounding Trump’s ceasefire, does not mitigate the risk; it merely postpones it. If oil stabilizes near $100 instead of declining towards the $75 projected by year-end oil futures, the analysis from Nomura significantly deteriorates compared to the baseline scenario.
The USD/JPY reached an intraday peak of 158.90 on Monday, but subsequent profit-taking led to a decline towards 157.60 by Tuesday. The shooting star candle formation observed on the daily chart, characterized by a session that extends towards a significant resistance level before reversing to close near the lows, serves as a prominent technical indicator of a potential near-term peak in the pair. The 159.00 level holds significance beyond being merely a round number. It resides at the edge of the area where Japanese authorities have traditionally engaged in foreign exchange market interventions — the 159.00-160.00 intervention threshold — and the market’s recollection of that boundary is thoroughly recorded. Monday’s high at 158.90 adhered closely to that threshold, and the following pullback indicates that traders are highly cognizant of the potential intervention risk at those levels. The session concluded beneath the monthly R1 pivot and the previous week’s peak, providing technical validation for the reversal signal. A minor bearish divergence on the RSI(2) has emerged, as closing prices do not validate the intraday highs achieved during the session. On the downside, the first significant support level is the March 3 high at 157.97, which has transitioned from resistance to support. A sustained break beneath that level paves the way to the March 5 swing low at 156.45, and further down, the 50-day SMA at 156.15. The 20-day and 100-day SMAs are converging at 155.49-155.51 — a notable technical confluence that would indicate a considerable pullback from current levels, likely achievable only if the resolution of the Iran conflict is confirmed rather than merely indicated through verbal signals. A strong move beyond 157.65, followed by a breakthrough at 158.35, would indicate that bullish sentiment is regaining strength and that the optimism surrounding the ceasefire possesses sufficient credibility to maintain the dollar’s appeal as a safe haven. Recent COT data indicates that large speculators have transitioned to a net-short position in yen futures, while asset managers have shifted to a net-long stance on dollar index exposure. These positioning signals align more closely with the war risk premium than with a normalized macroeconomic environment.
Prior to the escalation of the Iran conflict, the Bank of Japan was managing what seemed to be a plausible trajectory towards gradual policy normalization. Bloomberg analysts expressed differing opinions regarding the timing of the next rate hike, with some favoring April and others June. However, the futures market indicated a 60% likelihood of a rate hike occurring in April. Union wage negotiations have yielded demands ranging from 5.95% to 6.1% — figures that, if realized, could generate the domestic demand-pull inflation that the BoJ has been anticipating for two decades. Prime Minister Sakae Takaichi’s administration was exerting fiscal pressure that complicated the Bank of Japan’s independence; however, the general trend indicated a careful tightening with a tangible possibility of an April adjustment. The Gulf energy shock alters the economic landscape in a manner that poses significant challenges for the BoJ. Japan is now confronted with the potential for an oil-induced cost-push inflation surge coinciding with a contraction in GDP growth due to increased import expenses. This situation reflects a stagflationary configuration, mirroring the crises faced by Japan in the 1970s. Increasing rates would exacerbate growth damage, while refraining from raising them permits inflation to become entrenched. The BoJ’s longstanding inclination towards a “wait and see” approach has now become its most significant drawback. Bank of America has pointed out that, in contrast to the Fed and European central banks, which have a history of tightening during supply shocks, the Bank of Japan’s cautious approach is a direct factor in the weakness of the yen. The market is aware that the BoJ will yield before it raises rates in a stagflationary context, and this understanding creates persistent pressure on the yen, irrespective of the current pricing in overnight rate futures. The probability of a 60% rate hike in April was established within a macroeconomic context prior to the conflict. The previous environment is now a thing of the past, and the market has yet to completely adjust its pricing to account for that likelihood.
The DXY reached an intraday high of 99.70 on Monday, marking the most robust reading in over three months, indicative of the substantial geopolitical safe-haven demand directed towards the greenback. However, the session concluded with a bearish outside day candle — characterized by a high that surpassed the previous day’s high and a low that dipped below the prior day’s low, with the close settling in the lower half of the range — a formation that generally indicates a potential exhaustion of the current trend. The technical deterioration was already taking shape prior to Trump’s remarks on the ceasefire. The DXY struggled to maintain any significant movement beyond 99.70, even with compelling geopolitical reasons, and the five-day volatile range leading up to Monday’s shift indicated a deficiency in the clear directional momentum typical of a robust trend. As of Tuesday’s European session, the DXY had declined to 99.63 and was trading around 98.90 in New York — remaining elevated compared to pre-war levels but significantly lower than its recent peaks. The critical support levels on the DXY stand at 98.37, which corresponds to the 0.618 Fibonacci retracement, and 97.55. These levels are likely to be tested only if a structural resolution to the Iran conflict is confirmed, leading the market to swiftly unwind the entire geopolitical premium. The described situation represents the most pessimistic outlook for USD/JPY, driving the pair down to 156.44 and possibly challenging the 155.49-155.51 SMA confluence.
Bank of America’s examination of the yen situation warrants close scrutiny as it transcends the conventional “Japan will intervene at 160” narrative that many market players tend to rely on. BofA’s specific warning highlights that foreign exchange intervention amid widespread dollar strength and high crude prices presents a notably increased risk of ineffectiveness. The historical record of Japanese intervention underscores this concern: when the dollar appreciates due to its own fundamental strengths — such as safe-haven demand, divergence in Federal Reserve policy, and energy price fluctuations — Japanese authorities utilizing reserves to sell dollars and purchase yen in response to that trend results in, at best, temporary stabilization and, at worst, significant reversals. BofA suggests that the intervention threshold in the current environment might need to be significantly higher than 160, as opposed to the 159-160 range that previous instances have led the market to anticipate. This statement indicates a bearish outlook for the yen, suggesting that the psychological safety net that has traditionally limited the upside of USD/JPY is proving to be less effective than it seems. The anticipated policy sequence outlined by BofA indicates that intervention will occur first, succeeded by tightening from the BoJ. However, should the intervention prove ineffective in light of the crude price environment, the timeline for BoJ action will be expedited. A decline in the equity market due to rising energy costs may lead Japanese pension funds and institutional investors to shift their allocations from bonds to equities. This shift could increase the steepening pressure on the JGB curve, necessitating intervention from the BoJ through yield curve control, thereby introducing an additional policy constraint alongside the decision on interest rate hikes.