USD/JPY initially surged above 160 on Monday before reversing lower as U.S. Treasury yields pulled back, taking some momentum out of the greenback. The earlier move higher reflected the ongoing impact of the Iran-driven oil shock, which continues to weigh disproportionately on Japan given its reliance on imported energy. Elevated crude prices are worsening Japan’s terms of trade and reinforcing a challenging macro backdrop, even as they push headline inflation higher. But as yields in the U.S. retraced, the buck lost traction, allowing the Yen to recover.
For the BOJ, the current environment remains deeply complicated. Rising energy costs are lifting inflation, but policymakers remain skeptical that this represents the kind of demand-driven price pressure needed to justify a more aggressive tightening path. At the same time, higher import costs risk undermining growth, reinforcing the BOJ’s cautious approach to normalization. With the Federal Reserve still guiding toward a data-dependent stance, USD/JPY is increasingly being driven by rate dynamics in the U.S., with today’s reversal highlighting how sensitive the pair remains to shifts in Treasury yields even amid a persistent energy shock.
In the above chart, USD/JPY rates are persisting above former multi-year resistance (the swing highs at the start of 2025 and early-2026) carved out below 160.00. The sustained move above resistance, now support, suggests that the year-plus long ascending triangle has yielded a topside breakout, which remains the guiding technical thrust. Momentum may have dissipated in recent days, with Slow Stochastics dipping out of overbought territory; nonetheless, MACD, while in decline, is still firmly above its signal line. For now, bulls remain in control with USD/JPY in breakout territory. Traders should watch for a breakdown in both oil and Treasury yield, however – doing so could spell the end of the ascending triangle’s bullish potential.