USD/JPY Weekly Forecast: Energy Shock Hammers Yen as Intervention Risk Looms

Author: David Scutt, Market Analyst

Date: March 7, 2026

Overview

The USD/JPY currency pair has been influenced significantly by rising energy prices due to geopolitical tensions, particularly the conflict involving the United States, Israel, and Iran, which has disrupted the Strait of Hormuz. This situation has created a disparity in currency performance, favoring energy-rich nations like the U.S. while putting pressure on energy-dependent economies like Japan.

Key Factors Influencing USD/JPY

• Energy Prices: The surge in oil and LNG prices has been a primary driver for the USD/JPY increase, with correlations between the pair and energy markets reaching around 0.69.
• Political Considerations: The political implications of the ongoing conflict may affect U.S. domestic policies, particularly as midterm elections approach. The Dow Jones Industrial Average's performance is a key indicator of market sentiment that could influence policy decisions.
• Federal Reserve Outlook: The upcoming CPI data is crucial for assessing inflation and potential interest rate adjustments by the Fed. Current market expectations suggest a possibility of rate cuts later in the year.
• Intervention Risks: As USD/JPY approaches critical levels, the risk of intervention by the Bank of Japan increases, particularly if the yen continues to weaken.
• Carry Trade Vulnerability: The yen's role as a funding currency means that any escalation in geopolitical tensions could lead to a rapid strengthening of the yen as carry trades unwind.

Technical Analysis

Technically, the USD/JPY pair is showing bullish signals, with a coiling price action suggesting potential upward movement. Key resistance levels to watch include 157.88, while support levels are identified at 156.50 and 155.64. The momentum indicators, such as RSI and MACD, are also indicating a bullish trend.

Conclusion

The outlook for USD/JPY remains complex, driven by energy market dynamics and geopolitical tensions. Traders should remain vigilant for any signs of intervention from Japanese authorities and monitor upcoming economic data that could influence the Fed's policy direction.