USD/JPY Volatility Gripped by Hormuz Report Amid Persistent Interest Rate Gap

The USD/JPY pair experienced a volatile session after reports that Iran may reopen the Strait of Hormuz within seven days if the US eases military pressure and lifts its blockade of Iranian ports.

The news initially led to a brief dip in the pair's value, falling to just under 157.00, but it rebounded to around 157.50 after the reports were deemed conditional and had little impact on Japan's near-term dollar oil bill or the yield advantage favoring the dollar.

Traders are focusing on the persistent interest rate gap between the US and Japan, which still heavily favors the US Dollar by 2.625 percentage points.

The Bank of Japan raised its rates to 1.25% last week, but this has not changed the carry trade's profitability for USD/JPY.