Executive Summary
USD/JPY trades at approximately ¥158.52 as of March 11, 2026, meaning every US dollar buys roughly 158.5 yen — near the upper end of the two-year lateral range and only 150–240 pips below the Ministry of Finance's confirmed intervention ceiling at 160. The pair has rallied sharply from its February low of ~152.09, gaining approximately 4.3% in three weeks, driven entirely by the Iran conflict's twin effects: safe-haven USD demand and direct terms-of-trade damage to Japan via surging oil prices. Over a one-year window, USD/JPY has risen approximately 6.8%, reflecting the persistence of the 288bps US-Japan rate differential and the BoJ's gradual normalisation path. The dominant bilateral narrative is a head-on collision between two powerful opposing forces: on the USD side, Iran-driven safe-haven demand, a still-wide carry premium, and upcoming FOMC event risk; on the JPY side, once-in-a-generation structural undervaluation (BIS REER at an all-time low of 67.73), the BoJ's unique position as the only G10 central bank in a hiking cycle, the world's most dangerous carry-trade unwind liability, and fiscal year-end repatriation flows building over the next three weeks. The bilateral edge is directionally clear over the strategic horizon — rate differential convergence from 288bps toward 175–200bps as the Fed cuts and the BoJ hikes must eventually produce meaningful JPY appreciation — but the Iran war has delayed and obscured this signal tactically. Our headline stance is: Tactically Neutral to mildly Bearish USD/JPY (pair likely range-bound 155–160 through month-end, with downside bias post-FOMC) and Strategically Bearish USD/JPY (pair targets 148–152 over six months as the convergence thesis materialises), at Conviction 3/5.