Dollar Strength Keeps USD/JPY Near Highs as Oil Drives Inflation Concerns

The USD/JPY pair remained steady near recent highs on Thursday, holding around the 159.45 level after three consecutive days of gains. The pair continues to benefit from a stronger US dollar, supported by persistent geopolitical tensions in the Strait of Hormuz that are keeping energy prices elevated and markets on edge.


Rising oil prices have become a key driver behind the dollar’s resilience. Investors increasingly expect higher energy costs to feed into inflation in the United States, reducing the likelihood of near-term rate cuts by the Federal Reserve. This environment has helped sustain demand for the greenback and maintain upward pressure on USD/JPY.


Recent US economic data has also reinforced this trend. Indicators point to solid business activity, highlighting an economy that remains relatively strong despite some softness in the labor market. This underlying strength continues to support the US dollar against major peers.


On the Japanese side, the yen remains under pressure. Japan’s heavy reliance on energy imports makes it particularly sensitive to rising oil prices, which weigh on economic performance and weaken the currency. At the same time, expectations for policy tightening by the Bank of Japan have been pushed further out, with markets anticipating a cautious stance in the near term.


This combination of higher energy costs and delayed policy normalization has kept the yen on the defensive, allowing USD/JPY to stay elevated. However, further gains may be limited as the pair approaches the key psychological level of 160, where concerns about potential intervention by Japanese authorities tend to increase.


For now, USD/JPY reflects a broader global narrative: a firm US dollar supported by inflation concerns and geopolitical risks, set against a weaker yen facing both domestic and external pressures. As markets await upcoming policy decisions from the United States and Japan, the pair is likely to remain highly sensitive to shifts in economic expectations and global developments.