Soaring geopolitical tensions and a rapid narrowing in U.S.-Japan yield spreads have combined to send USD/JPY sharply lower in Asia, breaking trend support and triggering fresh bearish signals. With the risk of further escalation growing, could a deeper carry trade unwind now be on the cards?
USD/JPY Downside Accelerates on Haven Flows
A sharp escalation in Middle East tensions has triggered a rush into haven assets, helping drive USD/JPY sharply lower through key support levels in Asia on Friday. Combined with a rapid compression in U.S.-Japan rate differentials, the backdrop is one where the yen typically outperforms, especially if conflict risks morph into outright war.
Israel launched coordinated strikes on Iranian nuclear and military infrastructure, hitting facilities in Natanz and Tehran under “Operation Rising Lion.” It warned of retaliation, while the U.S. denied involvement but said it’s preparing for regional fallout. Oil spiked over 8%, U.S. equity futures slid nearly 2%, and haven currencies outperformed cyclical peers.
USD/JPY Breaks Uptrend, April Lows in Sight?
In headline-driven markets like this, technicals take a back seat to managing risk. But the price action in USD/JPY is telling—breaking its April uptrend and potentially flagging a return to the broader downtrend. RSI (14) has broken its own uptrend and moved further south of 50, while MACD has crossed below the signal line in negative territory—both confirming a bearish shift.
Source: TradingView
From both a fundamental and technical standpoint, the preference is to play USD/JPY from the short side in the near term. If the trend break holds, 142.42 marks the start of a wider support zone down to 141.65, making both downside targets.
Under normal conditions, this zone would be hard to crack without a fresh catalyst. But further escalation could unleash a disorderly, carry trade-led unwind, similar to last August.
A break below 141.65 would open the door to April’s swing low near 140, then 139.60 from September. If the trend break fails, 144 and the 50DMA offer resistance above.