Keep an eye on USD/JPY today. It’s risen another 10 pips in the past few minutes and is up 33 pips on the day to 159.94.

The market is increasingly worried that Trump’s strategy in Iran is a long-term siege and blockade with the Strait of Hormuz potentially closed for months. That’s not a good idea, particularly for US allies who are highly dependent on energy imports, like Japan.

Notably, Japan was seemingly able to negotiate the passage of an LNG cargo via Hormuz this week, the first one since the war began. That suggests some underlying diplomacy with the Iranian side that could be more critical if the war extends.

In terms of actual shortages, Japan is in a decent spot as it has huge reserves but pricing is a problem.

We are now also firmly into intervention territory as the pair pushes up against 160.00. Looking at the long term weekly chart of USD/JPY, it’s obvious how critical this zone is.

The March high was 160.64 and the 2024 high was 161.95. Earlier this year, a rate check led to a sharp fall in the pair and the tough talk from Japanese currency officials hasn’t stopped at all.

Here was a recent interview from legendary investory Paul Tudor Jones on the yen:

So that’s, I think, the genesis of most of the big moves. Typically, it’s gonna be inspired by a central bank or central government. A good one right now in the making – it’s gonna be interesting, I think – is dollar-yen. The yen’s grossly undervalued and it has been for some time.

What Japan needs right now is an end to the war and for the Bank of Japan to embark on a rate cutting cycle. If that happens, then we could see some big, trending moves, which is exactly what FX traders love.