DBS Group Research’s Philip Wee warns that caution is warranted on USD/JPY as the pair trades near the 159–160 resistance zone after Operation Epic Fury. He expects the Bank of Japan to deliver a hawkish hold on March 19, distinguishing temporary supply-led inflation from demand-pull pressures. A successful Trump–Xi summit could de-escalate Iran tensions, cool Oil prices and undermine the current USD/JPY floor.

BOJ normalization risk at key resistance

“Caution is warranted with USD/JPY at the year’s high after Operation Epic Fury, as the pair tests the psychologically significant 159-160 resistance zone amid a dense “geopolitical cloud.” While the flight to safety and surging energy costs have favoured the USD over the JPY, the Bank of Japan is expected to deliver a hawkish hold at its March 19 meeting to maintain its path of interest rate normalization.”

“By distinguishing between temporary supply-led inflation driven by the Strait of Hormuz chokepoint and the sustainable demand-pull inflation signalled by robust Shunto wage increases, BOJ Governor Kazuo Ueda may also be waiting for a potential diplomatic off-ramp on Iran during US President Donald Trump’s visit to China on March 31-April 2.”

“If the Trump-Xi summit successfully de-escalates the Iran conflict and cools oil prices, the current fundamental floor for USD/JPY could give way, making any aggressive long positions at these multi-decade highs particularly vulnerable to both a shift in sentiment and the ever-present threat of Japanese Ministry of Finance intervention.”

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