19.05.202614:36 Forex Analysis & Reviews: USD/JPY: Pushing through 159 level raises crash risk

USD/JPY is displaying a pronounced northward trend. In early May, sellers drove the pair to a three-month low at 155.05 but failed to hold that area. Buyers immediately regained control and climbed roughly 400 pips in two weeks. For a second day, they have been testing the 159 level in the context of general dollar appreciation, and on current momentum, the pair looks set not only to hold this area but also to probe resistance at 159.40 — the upper Bollinger Band on the four-hour chart (H4).

Looking ahead, the closer the pair approaches the 160 boundary, the greater the risk of a reaction from Japanese authorities. Recall that after the April intervention on April 30, the pair plunged nearly 500 pips in an hour. A further intervention on May 6 pushed the pair down almost 300 pips. Each time buyers used the decline, they re-entered long positions.

The latest move followed the same pattern. Rising geopolitical tensions have supported USD/JPY as the dollar strengthened on safe-haven flows. The focal point is the Middle East conflict. Although diplomatic processes are not formally broken, the market is increasingly pricing the prospect of renewed military escalation.

Yesterday, Iran submitted an updated draft settlement proposal to the United States via Pakistani intermediaries. Washington described the package as insufficient on the same day, citing disagreements over the nuclear program, control of the Strait of Hormuz, and security guarantees. Media reports have also circulated suggesting possible resumption of military action in the region. According to CNN and the New York Times, the Trump administration is discussing options with the Pentagon for airstrikes on Iran should negotiations collapse. President Donald Trump has recently hardened his rhetoric, saying his patience is running out.

State media in Iran issued warnings to the United States and its allies about miscalculations and strategic errors, while spokesmen for the Islamic Revolutionary Guard Corps (IRGC) said they were ready to repel aggression and stronger than ever. Experts interviewed by the New York Times note that, in the event of a new round of hostilities, Iranian forces could attempt to seize control of the Bab al-Mandeb Strait—the narrow waterway linking the Red Sea and the Gulf of Aden through which about 10 percent of global trade transits.

The renewed spike in risk aversion strengthened the greenback across markets and allowed buyers to push USD/JPY into the 159 area.

Nevertheless, long positions in the pair carry substantial risks.

First, despite bellicose rhetoric, the United States has so far refrained from escalating militarily in the Middle East. President Trump said that US forces had planned renewed heavy strikes on Iran for Tuesday, but that the attack was postponed at the last moment. He added that he delayed the strike at the request of leaders from Saudi Arabia, Qatar, and the UAE to give diplomacy a final chance.

Although this was another final chance offered by President Trump, the fact that it was offered at all is significant: it shows hopes for a diplomatic settlement remain, and that sustained upside for USD/JPY is by no means assured.

Second, as the dollar strengthens, the threat of a Japanese currency intervention intensifies. The 159.00–160.00 corridor (and above) has effectively become a minefield. Long positions within this band resemble a form of roulette: the regulator's intervention trigger could occur at any moment.

Given these risks, key resistance remains at 159.40 (upper Bollinger Band on the four-hour chart). If upward momentum fades in this area, it may be prudent to consider short positions with an initial target of 158.70 (middle Bollinger Band on H4) and a primary target of 158.20 (middle Bollinger Band on the daily chart, D1).