USD/JPY Faces Downside Risk as Ceasefire Optimism Pressures Dollar

Markets are becoming more optimistic that Middle East tensions may ease after signals that US–Iran negotiations could restart. This has pressured the US dollar and oil, while supporting equities and risk assets. USD/JPY could move toward 1.56 if a lasting ceasefire is confirmed.

Policy expectations are also weighing on the dollar. Markets expect the Federal Reserve may ease later this year, while other central banks, including the Bank of Japan, appear relatively more hawkish. At the same time, US consumer sentiment fell sharply to 47.6 from 53.3, raising concerns about weaker growth.

Technically, USD/JPY momentum is fading near 160.00, and the pair could form a third straight bearish weekly candle, but it is still too early to confirm a major top. Immediate support is 158.20, and Key supports are 157.50–157.70 and 155.65, with a break below 156.00 needed to confirm a stronger reversal.

USD/JPY Daily Chart

Overall, the outlook depends on oil prices, developments around the Strait of Hormuz, and US economic data. If oil falls and US data weakens further, downside pressure may increase. Otherwise, dips could still be bought.