USD/JPY approaches the 161 level, with Trump's Iran deadline becoming the focus

Tonglian Finance APP News—— During Tuesday’s (April 7) European trading session, the US dollar to Japanese yen maintains a firm, range-bound consolidation pattern. The spot rate is trading in the 159.45-159.92 range, with the intraday report at 159.628. The overall market shows the characteristics of “a ceiling on the upside and a floor on the downside.” Driven by the looming proximity to Trump’s Iran final deadline, the dollar receives safe-haven support. However, Japanese Finance Minister Ichiro (Kats) Makoto Kaji? (片山) has vowed to strengthen G7 coordination and intervention, which limits further upside push. Meanwhile, the 30-day logarithmic correlation coefficient between the US dollar/JPY and the euro/yen is far below +0.5; the correlation is unraveling and the market’s inter-linkage is weakening.

Overall, although upside risks still exist, the options market’s volatility risk premium is at a relatively low level. The market generally expects that the daily chart may ultimately break through the 161 level. But in the short term, it is suppressed by threats of continued intervention, making it difficult to achieve sustained, one-way upside gains.

Reuters market analyst Martin Miller said: “The daily chart of the dollar to Japanese yen suggests it may eventually break through the 161 level, especially when the conversion line and the base line are aligned in a bullish direction.”

Fundamental Analysis

The US-Japan interest rate differential remains one of the core factors supporting the dollar. The Federal Reserve maintains relatively high interest rates, while the Bank of Japan’s policy is comparatively cautious, keeping the interest spread as a positive support for the dollar. This week, the Fed’s March meeting minutes and the US March CPI data will be the market’s focus. If the data turn hawkish, it will further reinforce the dollar’s strength.

As for the Bank of Japan, due to domestic economic data, market expectations for a near-term rate hike by the BoJ have cooled. Overall, the divergence in central bank monetary policy remains the main fundamental logic driving the US dollar to Japanese yen trend.

Economic Data

Japan’s February total household spending fell 1.7% year over year, far worse than the market expectation of -0.7%, and further deteriorating from January’s -1%. This unexpected weak data reflects sluggish domestic consumption recovery in Japan, which may prompt traders to lower expectations for the BoJ’s hawkish policy. In the short term, it is bearish for the yen.

Geopolitical Factors

Trump’s Iran final deadline coming into view has become an important catalyst for today’s trading backdrop. US President Donald Trump has threatened that if Iran does not reopen the Strait of Hormuz before 8:00 p.m. Tuesday (US Eastern Time), it will destroy Iran’s power facilities and bridges, and may even “solve” the issue overnight. Rising geopolitical tensions boost safe-haven demand for the dollar, while also keeping the market wary about risks to oil supply.

At present, the VIX volatility index and US equities (especially the Nasdaq) have not shown dramatic volatility, but uncertainty in the Middle East situation remains a key variable affecting risk appetite.

Mainstream Viewpoints

Mainstream media generally believe that the dollar will remain firm in the short term, but upside gains are limited. UOB analysts Quek Ser Leang and Lee Sue Ann noted: “The US dollar to Japanese yen underlying tone is still tilted toward strength, but it is expected to trade in the 159.40-159.95 range. Over the next 1-3 weeks, the broader range is 158.80-160.45. In the long run, there is a chance to break above 159.45, but the 162.00 high will be an upside resistance.”

FXStreet analyst Sagar Dua said that the US dollar to Japanese yen has held steady around 160.00 during the European session. Uncertainty over the Iran situation keeps the market cautious, and the weak Japanese household spending data further undermines hawkish BoJ expectations.

Technical Analysis

(US dollar/JPY daily chart Source: Yi Huitong)

The daily chart shows the Ichimoku equilibrium (conversion) line and the base line are arranged in a bullish configuration, and the overall market structure is biased to the upside. Price is currently running in the upper half of an ascending parallel channel, and the 20-day exponential moving average (EMA) continues to rise, providing support to price.

The RSI indicator is near 58, staying above the 50 line, indicating that upward momentum still exists but is not yet overbought. The short-term support level is near the lower rail of the channel at around 158.40; if it breaks, it will further probe 157.70. The first resistance overhead is the upper rail of the channel at 160.90; after a breakout, it may confirm an extension toward 162.00.

Calendar Reminder

Today (April 7) there are no major US-Japan economic data releases.

This week’s key focus (Beijing Time):

Fed March meeting minutes (exact release time pending, usually the evening of Wednesday or Thursday)

US March CPI data (expected to be released on Wednesday or Thursday)

The above data will directly affect expectations for Fed policy, so investors are advised to watch in advance.

Summary Outlook

Combining market conditions, fundamentals, geopolitical factors, and technicals, the US dollar to Japanese yen is likely to maintain a slightly stronger consolidation pattern in the short term. It is expected to test the 161 level, but threats of Japanese intervention and geopolitical uncertainty still pose upside resistance. Investors should closely monitor this week’s Fed data and developments in the Middle East situation and flexibly adjust positions.

【FAQ】

Question 1: What is the core impact of Trump’s Iran final deadline on the US dollar to Japanese yen exchange rate?

Answer: Trump clearly threatens that if Iran does not reopen the Strait of Hormuz within the specified time, it will take military action. This statement directly boosts geopolitical risk, prompting funds to flow into the US dollar as a safe-haven asset, thereby supporting a stronger US dollar to Japanese yen. At the same time, it also reminds the market that escalation of conflict could lead to volatility in oil prices, indirectly affecting global risk appetite.

Question 2: Why would Japan’s February household spending data be bearish for the yen?

Answer: Household spending is an important indicator for measuring consumption in Japan. This time, actual spending declined 1.7%, far below expectations, showing weak consumption recovery. This would weaken market confidence in further tightening of monetary policy by the Bank of Japan, causing the yen’s appeal to fall, and thus creating downside pressure on the US dollar to Japanese yen.

Question 3: How can the US-Japan interest rate differential continue to play a role in the current environment?

Answer: The US maintains relatively high interest rates, while Japan’s policy remains comparatively accommodative; the interest spread structure has not changed fundamentally. As long as the Fed is not in a hurry to cut rates sharply, this interest differential will continue to support the US dollar to Japanese yen. Even if short-term geopolitical events dominate the trading backdrop, the interest spread remains the core anchor factor for medium- to long-term pricing.

Question 4: Why is the correlation between the US dollar to Japanese yen and the euro to Japanese yen unraveling?

Answer: Previously, the US dollar to Japanese yen and the euro to Japanese yen often moved in sync. But now the 30-day correlation coefficient is far below 0.5, indicating that the drivers behind them are beginning to diverge. The dollar is increasingly influenced by US policy and geopolitical factors, while the euro is independently affected by the eurozone’s own economic data and the European Central Bank’s policy, leading to weaker linkage.

Question 5: What background factors should investors focus on in the current environment?

Answer: In addition to exchange-rate fluctuations themselves, investors should also pay attention to the Fed’s meeting minutes and CPI data this week (which will determine the dollar’s medium-term direction), Japan’s domestic consumption recovery progress (which affects expectations for the Bank of Japan’s policy), and the latest developments in the Middle East situation. These factors together form key background for assessing the short-term direction and risks of the US dollar to Japanese yen, helping investors avoid being misled by a single event.

(Editor-in-charge: Wang Zhiqiang HF013)

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