• USD/JPY pair snaps a four-day winning streak.
• Hopes of renewed US-Iran talks support risk appetite.
• Bank of Japan expectations and intervention threats cap upside.

USD/JPY trades around 159.50 on Friday at the time of writing, down 0.14% on the day and ending a sequence of four consecutive days of gains. The move comes amid a pullback in the US Dollar (USD), as improving market sentiment reduces demand for safe-haven assets.

The prospect of a new round of discussions between the United States (US) and Iran, with Iranian Foreign Minister Seyed Abbas Araghchi expected to reach Pakistan on Friday, is fueling hopes of de-escalation. This dynamic supports risk-sensitive assets and weighs on the Greenback, with the US Dollar Index (DXY) easing toward 98.60.

In this context, comments from the United States (US) Defense Secretary Pete Hegseth highlight the fragility of the ceasefire. He warned that any attempt by Iran to lay additional mines would be considered a violation of the agreement, while noting that transit through the Strait of Hormuz is currently ongoing. He also called for stronger European involvement to help secure this strategic waterway, a key route for global energy flows and market stability.

On the Japanese side, the Japanese Yen (JPY) is driven by mixed factors. Speculation about potential intervention by Japanese authorities and comments from the Ministry of Finance provide some support to the currency. Finance Minister Satsuki Katayama reiterated readiness to act against excessive speculative moves, emphasizing close coordination with US counterparts.

At the same time, monetary policy expectations remain cautious. The Bank of Japan (BoJ) is expected to keep its policy rate unchanged at 0.75% at its upcoming meeting, while leaving the door open to future tightening.

According to analysts at MUFG, a dovish tone from the BoJ could reignite Japanese Yen selling pressure and push USD/JPY above the 160 level. Conversely, a more hawkish communication could help stabilize the Japanese currency, as markets already price in gradual tightening.

In this uncertain environment, USD/JPY remains caught between shifts in global risk sentiment, diverging monetary policy expectations and the risk of Japanese intervention, keeping the pair close to key short-term levels.