USD/JPY Price Forecast: Stuck in a range as Hormuz risks counter Iran diplomacy hopes

The USD/JPY pair builds on the previous day's goodish rebound from the 158.25 region, or over a one-week trough, and gains some follow-through positive traction on Friday. Spot prices, however, struggle to capitalize on the intraday move up beyond the 159.50-159.55 region amid mixed fundamental cues. The Japanese Yen (JPY) continues with its underperformance on the back of economic concerns stemming from the Middle East conflict. However, intervention fears hold back the JPY bears from placing aggressive bets, which, along with the lack of any meaningful US Dollar (USD) buying, caps the upside for the currency pair.

Investors remain worried that Japan's economy will come under substantial strains in the foreseeable future, as the risk to energy supplies remains due to continued disruptions to shipping through the Strait of Hormuz. Moreover, Bank of Japan (BoJ) Governor Kazuo Ueda earlier today refrained from signalling that a rate hike was on the ‌cards this month. This turns out to be a key factor that continues to undermine the JPY. That said, comments from Japan’s Finance Minister Satsuki Katayama, saying on Thursday that she discussed with Treasury Secretary Scott Bessent on foreign exchange, revived intervention fears. This helps limit deeper JPY losses and acts as a headwind for the USD/JPY pair.

Meanwhile, a 10-day Israel-Lebanon truce fueled hopes about a prolonged US-Iran ceasefire. Adding to this, US President Donald Trump struck an optimistic note and told reporters on Thursday that Iran was close to making a deal. Moreover, the Wall Street Journal reported that Washington and Tehran have agreed in principle to hold fresh talks, though neither side has set a time or venue for the meeting. Intensifying diplomatic efforts to end the Middle East conflict, along with receding hawkish US Federal Reserve (Fed) expectations, caps the attempted USD recovery from its lowest level since late February, touched on Thursday, and warrants caution for the USD/JPY bulls.

Crude Oil prices struggle to attract any buyers amid the optimism over a potential further de-escalation of tensions in the Middle East. Adding to this, the US Producer Price Index (PPI) released earlier this week eased concerns about the inflationary impact of the war-driven surge in energy prices, forcing investors to abandon Fed rate hike bets. According to the CME Group's FedWatch Tool, there is a roughly 30% chance of a Fed rate cut by the year-end. This marks a significant divergence in comparison to a relatively hawkish BoJ, making it prudent to wait for strong follow-through buying before positioning for any further appreciating move for the USD/JPY pair.

USD/JPY 4-hour chart

Technical Analysis:

The overnight rebound from the 200-period Exponential Moving Average (EMA) support on the 4-hour chart, which coincides with the lower end of a short-term trading range, and the subsequent move up favor the USD/JPY bulls. Moreover, momentum indicators are constructive but not overstretched, validating the positive outlook and backing the case for a further appreciating move. In fact, the Relative Strength Index (RSI) is hovering near the neutral line at 51.6, while the Moving Average Convergence Divergence (MACD) histogram remains slightly positive, hinting that upside pressure is present but lacks strong acceleration for now.

Meanwhile, initial support is reinforced by the 200-period EMA at 158.41, where buyers would be expected to emerge on shallow pullbacks to defend the prevailing trend structure. The focus, however, remains on whether bulls can maintain price comfortably above the 200-period EMA, as a sustained break below this floor would weaken the current constructive outlook and open the way for a deeper corrective phase.

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

Technical Analysis:

In the four-hour chart, USD/JPY trades at 159.15. The pair holds a modest bullish bias as it continues to trade above the 200-period Exponential Moving Average (EMA) at 158.41, keeping the broader uptrend underpinned despite recent consolidation.