USD/JPY Outlook: Hormuz hopes hit crude as traders eye Koeda, Warsh

• Supertankers exit Hormuz, hammering crude and US two-year yields lower
• USD/JPY correlations show front-end spreads remain the key driver
• Koeda speech in focus with two BOJ hikes priced in 2026
• Failed breaks above 159 leave USD/JPY vulnerable to deeper retracement

Gulf headlines hit oil and yields

USD/JPY remains heavily tied to oil prices and relative central bank expectations, leaving developments in the Gulf, a speech from BOJ board member Koeda, and upcoming US economic data set to remain in the driving seat for the pair in the near term.

The linkages between crude, rates and USD/JPY were on full display again on Wednesday as Brent crude fell around 6% and US two-year Treasury yields dropped roughly eight basis points, weighing modestly on the pair. The moves followed reports that several supertankers had successfully exited the Strait of Hormuz, including a vessel carrying Kuwaiti crude bound for South Korea that had been stranded in the Gulf for more than two months, fuelling hopes that physical supply flows from the region may gradually start to improve.

Separate reports that another US-Iran deal may be close likely added to the move, although traders have heard variations of that storyline repeatedly in recent weeks with little evidence so far that it will lead to a meaningful reopening of the strait.

Yield differentials remain king

The reaction reinforced how heavily USD/JPY remains tied to short-end yield differentials, particularly between the US and Japan. Correlation analysis shows the relationship between the pair and US-Japan two-year spreads remained extremely strong over the past five and 20 trading days at 0.92 and 0.73 respectively, both slightly stronger than the correlation with outright US two-year Treasury yields over the same periods.

Source: TradingView

That underlines the importance of relative central bank expectations for the pair. While developments in the Gulf continue to matter through their influence on crude prices and Fed pricing, the BOJ side of the equation also remains important, putting additional emphasis on remarks from BOJ board member Junko Koeda later Thursday.

Koeda faces hawkish test

Koeda is viewed as one of the more hawkish members on the BOJ board, having previously argued Japan’s real interest rates remain extremely low while sounding broadly supportive of further gradual policy normalisation.

Source: Bloomberg 

Ahead of her speech, overnight index swaps imply around a 78% chance of a 25 basis point BOJ rate hike in June with a full move priced by July, while a second increase is essentially priced by year-end.

The issue for the BOJ is that while policymakers continue to tighten policy, its messaging has often come across as cautious and dovish, limiting the extent to which tightening expectations have been able to build sustainably. To strengthen the yen from a domestic rates perspective, Koeda will likely need to deliver a more hawkish message rather than the cautious tone markets have become accustomed to hearing.

Warsh may matter most

Beyond Koeda, the US data calendar over the next 24 hours is busy without featuring many top-tier releases. Weekly jobless claims and flash PMI data will attract the most attention given their potential influence on Fed pricing and front-end Treasury yields, especially with futures currently implying around 13 basis points of tightening this year and 26 basis points by the middle of next year.

While Japanese CPI data is due Friday, it rarely generates major surprises nowadays given Tokyo inflation data arrives roughly three weeks earlier.

Realistically, the most important event heading into the weekend may come from Washington rather than the data calendar, with markets set to closely watch remarks from incoming Fed Chair Kevin Warsh when Donald Trump formally unveils him during Friday’s swearing-in ceremony.

159 rejections shift tone

Source: TradingView

USD/JPY has broken the uptrend it had been sitting in over the past fortnight following the decline in crude prices and front-end US yields, having struggled to break above 159 resistance in the days beforehand. Should the break stick, it suggests the pair may be entering a new trend.

Right now, the 50DMA is the key level to monitor immediately beneath where the pair now trades, with a move below increasing the risk of a retracement back towards 157.92, the breakout zone from last week. 157 and 156 are notable levels further down, the latter especially given it absorbed strong offers during suspected intervention-related flows around the turn of the month.

On the topside, 159.00 remains important, providing traders with two nearby levels to construct setups around depending on how near-term price action evolves. If the pair were to push meaningfully above 159.00, 160 and 160.73 become the key levels to watch.

The message from the oscillators is broadly neutral when it comes to directional bias, but given the pair struggled to hold probes above 159 in an environment that was otherwise supportive for upside, the preference is to sell rallies rather than buy dips in the near term.