USD/JPY holds gains as Trump escalates Iran war, Hormuz headlines cap upside

The USD/JPY pair is trading near the 159.40 price region on Thursday, having surged earlier in the day, though price action turned more volatile during the American session as headlines briefly supported risk sentiment.

Earlier in the day, United States (US) President Donald Trump escalated tensions with Iran, stating the US would “go harder” and warning that two to three more weeks of fighting are likely, while ruling out negotiations. Iran also appears unwilling to engage diplomatically, maintaining control over the Strait of Hormuz.

Markets initially reacted with a strong risk-off tone. Oil prices surged sharply, while stocks, bonds, and gold tumbled, boosting demand for the US Dollar (USD). This dynamic pushed USD/JPY higher, as the Greenback benefited from safe-haven flows and relative economic resilience.

However, the pair trimmed intraday gains during the American session after reports emerged that Iran is drafting a protocol with Oman to manage and facilitate traffic through the Strait of Hormuz, signaling a potential step toward stabilizing shipping conditions.

On the Japanese side, fundamentals continue to weigh on the Japanese Yen (JPY). Japan’s heavy reliance on imported energy leaves it particularly exposed to rising oil prices, worsening its trade balance and pressuring the currency. Additionally, concerns persist that the Bank of Japan (BoJ) may be underestimating the economic fallout from the Iran conflict, particularly due to higher input costs and supply disruptions.

At the same time, Japanese authorities have reiterated warnings about excessive Yen weakness, suggesting that intervention risks remain elevated if volatility intensifies. However, without a decisive policy shift from the BoJ, these warnings have had limited lasting impact.

Short-term technical analysis:

On the 4-hour chart, USD/JPY trades at 159.37. The near-term bias is almost neutral as the pair holds above both the 20-period and 100-period Simple Moving Averages (SMAs), with the shorter average still trading over the longer one despite flattening. Price is consolidating just under the 159.70 resistance area after recovering from last week’s pullback toward 158.30, keeping buyers in control while momentum stabilizes. The Relative Strength Index (RSI) hovers around 52, aligning with a moderating but still positive tone rather than strong trending conditions.

Immediate support is seen at 159.32, with additional protection at 159.24, both sitting close to the 20-period SMA and reinforcing this area as a key floor for the current upswing. A sustained break below these levels would expose the rising 100-period SMA near 159.20, where a deeper correction could develop. On the upside, initial resistance stands at 159.39 ahead of the more significant 159.70 cap, which coincides with recent consolidation highs. A clear move above 159.70 would reopen the path toward the 160.00 region and strengthen the bullish outlook.

(The technical analysis of this story was written with the help of an AI tool.)