The USD/JPY pair is currently at 156.87, closely approaching the 100-hour moving average that has characterized its upward trajectory since February 11. This level has faced multiple tests and defenses with heightened urgency on Wednesday, as the overall strength of the dollar starts to wane slightly, while the yen attempts to regain its previous status as a safe-haven currency. The pair reached a high of approximately 157.97-158.50 earlier this week, then retraced due to profit-taking and the hawkish remarks from Bank of Japan Governor Ueda. It now finds itself at a critical technical juncture that will decide if the uptrend that propelled USD/JPY from the 152.00 region will extend towards 159.03 and subsequently the 160.00 psychological level, or if the 100-hour moving average will falter, leading to the 200-hour moving average at 156.17 as the next significant target before a more profound structural test commences. The primary macro driver for USD/JPY remains a figure that has remained largely stable for weeks: the difference between U.S. 10-year Treasury yields at around 4.08% and Japanese 10-year government bond yields just above 2.00%. The 200-basis-point rate differential acts as a constant force, drawing capital away from yen-denominated assets and towards dollar-denominated assets. This dynamic persists irrespective of geopolitical events, safe-haven discussions, or central bank commentary.
Historically, during periods of heightened risk — such as wars, financial crises, and geopolitical shocks — the yen has consistently emerged as a key safe-haven asset. The 2022 Russia-Ukraine conflict initially led to an increase in yen value. The 2020 COVID shock caused a decline in USD/JPY as global capital sought refuge in Japan. The historical pattern is not repeating in 2026. In light of the U.S.-Israeli strikes on Iran, the effective shutdown of the Strait of Hormuz, and the MSCI Asia-Pacific ex-Japan plummeting 4.2% in one session, USD/JPY approached 158.00 instead of falling toward 150.00. The U.S. dollar and gold, surpassing $5,150, attracted the safe-haven interest, while the yen remained overlooked. The explanation lies in the 200-basis-point yield differential. Maintaining dollars yields 4.08%. The yield on holding yen is around 2.00%. In times of geopolitical upheaval, when all market players are re-evaluating risk and adjusting their positions, logical capital gravitates towards the more lucrative safe haven — and at this moment, that is the dollar, rather than the yen. The DXY Index trading above 99 points — its highest level since mid-January — quantitatively validates this trend. Japan is fundamentally a nation that relies on petroleum imports, lacking significant domestic energy reserves. The significant reliance on imported fuel indicates that any rise in Brent crude prices — which have surged by 15% since the onset of U.S.-Israeli strikes — directly escalates Japan’s import expenses, exacerbates its trade deficit, and exerts downward pressure on the yen via the current account channel. This is a direct effect. It is a systematic, structural mechanism that activates whenever energy prices increase.
The Strait of Hormuz, which handles around 20% of global oil shipments, is now essentially closed, with crude tanker transits plummeting from 24 vessels per day to just four as of March 1. This situation poses a direct threat to Japan’s energy supply chain. Finance Minister Satsuki Katayama indicated on Wednesday that Japanese authorities are observing the yen’s depreciation “with a strong sense of urgency” and are maintaining close coordination with the U.S., with intervention still an option. The phrasing — “strong sense of urgency” alongside collaboration with the U.S. Treasury — represents Japan’s Ministry of Finance’s most direct indication of readiness for potential intervention, all while refraining from taking immediate action. The persistence of USD/JPY above 156.00, in light of this language, indicates that the market is probing the Ministry of Finance’s determination rather than retreating in anticipation. Governor Ueda himself acknowledged that ongoing Middle East tensions “may significantly affect Japan’s economy, particularly through elevated energy prices and potential financial market disruptions.” When a central bank governor who oversees the world’s third-largest economy publicly identifies geopolitical risk as a potential threat to his nation’s economic trajectory, and the currency is simultaneously weakening rather than strengthening in response to that geopolitical event, the structural yen bearishness is confirmed at the highest institutional level.
The policy direction of the Bank of Japan regarding USD/JPY stands as the most debated factor influencing the pair’s short-term movement, and the uncertainty surrounding it is both palpable and measurable. BoJ maintained rates at 0.75% in January. Governor Ueda has characterized the meetings in March and April as “live” regarding the possibility of raising rates to 1.00% — terminology that, according to central banking communication norms, indicates real flexibility instead of mere rhetorical embellishment. Last week, board member Hajime Takata emphasized that framework with a clear caution regarding the risk of “inflation overshoot” — a statement that supports the case for rate increases rather than holding steady. The hawkish signal from the BoJ is likely to compress USD/JPY by narrowing the rate differential, when considered on its own. The counter-force is Prime Minister Takaichi’s nomination of two reflationist academics, who are generally viewed as favoring a less aggressive approach to monetary tightening, to the BoJ board. Furthermore, it has been reported that Takaichi conveyed specific concerns to Governor Ueda regarding additional rate hikes during a private discussion. The influence of political dynamics on a central bank leader advocating for more accommodative measures presents a fundamental signal that is likely to weigh on the yen, necessitating market adjustments.
When the Prime Minister’s office is actively complicating the tightening timeline — irrespective of the governor’s public commitments — the probability-weighted trajectory for BoJ rates leans towards fewer and more gradual hikes than what the hawkish board members’ remarks imply. Rabobank’s Foley clearly articulates this: a 12-month USD/JPY target of 145 — suggesting around 800 pips of yen strength from current levels — is based solely on the expectation that the BoJ will persist in raising interest rates during the forecast period. If Takaichi’s board nominees with a more lenient approach disrupt that tightening trajectory, the 145 target becomes fundamentally unattainable and the medium-term prospects for yen appreciation diminish. The Fed maintained rates at 3.50%-3.75% in January, with minutes indicating that “several participants discussed the possibility of raising rates if inflation stays above target” — a hawkish data point that further expands the forward rate differential against Japan.