USD/JPY was trading above 161.00 and just below the multi-decade high of 161.95 reached in July 2024, with commentary pointing to weaker crude oil prices as a potential easing factor for the yen’s external pressure. On that view, the currency pair was framed as having scope to drift lower, with 155.00 cited as a possible level if the oil-driven terms-of-trade headwind continues to fade.
Japan’s May inflation was described as contained and in line with consensus, with headline CPI rising by 0.1ppt to 1.5% year on year, partly restrained by government energy subsidies. The policy backdrop was characterised as consistent with continued BOJ patience, while market pricing via the swaps curve implied nearly 50bps of hikes to a 1.50% policy rate over the next 12 months. The piece also stated it was produced using an AI tool and reviewed by an editor.
Energy Costs and Their Impact on the Yen
With USD/JPY currently trading just under the 160.00 level, we believe the recent drop in energy costs presents a key opportunity. The recent decline in WTI crude oil from over $90 to around $82 a barrel eases significant pressure on Japan’s import-heavy economy. This fundamental shift should provide a tailwind for the yen.
BOJ Policy, Inflation Data, and Trading Strategy
The Bank of Japan is not being forced into an aggressive hiking cycle, which gives us confidence in a more measured policy path. Recent data for May 2026 shows Japan’s core CPI holding at 2.5%, a manageable level that doesn’t signal the central bank is behind the curve. This contrasts sharply with the US, allowing for policy divergence to potentially narrow in the yen’s favor.
Considering this outlook, we see value in positioning for a move lower in USD/JPY toward the 155.00-156.00 range in the coming weeks. One-month implied volatility for the pair has recently compressed, making option strategies more attractive. We would look to buy USD/JPY put options with a strike around 157.50 as a low-cost way to gain downside exposure.
