The USD/JPY pair continues to gradually recover after dropping below the 158.00 level—its lowest point in nearly three weeks—and is showing positive momentum on Thursday. Spot prices are currently approaching the 159.00 level, supported by several factors.

Market participants remain skeptical about the reliability of the fragile ceasefire between the United States and Iran after Israel launched a large-scale offensive in Lebanon. Additional reports suggest that Iran is considering withdrawing from the ceasefire agreement, claiming that Israel has violated its terms. This backdrop restrains positive sentiment and strengthens the U.S. dollar's position as the primary reserve currency, thereby providing additional support for USD/JPY.

Moreover, Iran's Islamic Revolutionary Guard Corps (IRGC) reported that shipping through the strategically important Strait of Hormuz was suspended just minutes after Israel's attack on Lebanon. Given that Japan heavily depends on oil imports from the region, these developments are once again raising concerns that the country's economy may face serious challenges in the near future. This further weakens the Japanese yen and lends additional support to USD/JPY.

Meanwhile, U.S. dollar bulls remain cautious amid the Federal Reserve's dovish monetary policy. In particular, the minutes of the March Federal Open Market Committee meeting, released on Wednesday, showed that the central bank expects to cut interest rates in the future, provided that inflation behaves in line with forecasts. This could limit further gains in USD/JPY, as traders eagerly await key U.S. inflation data that may significantly impact the market.

The U.S. Personal Consumption Expenditures (PCE) index will be released later during the North American session. Investor attention will then shift to the Consumer Price Index (CPI) report due on Friday, which will play a crucial role in shaping expectations for Federal Reserve policy and driving demand for the U.S. dollar. In addition, ongoing geopolitical developments may trigger heightened volatility in global financial markets and in the USD/JPY pair.

From a technical perspective, USD/JPY is holding above horizontal support at 158.35 on the 4-hour chart, which now coincides with the 200-period exponential moving average (EMA), maintaining a constructive short-term outlook. Meanwhile, the Relative Strength Index (RSI) is near 50, indicating stabilizing momentum rather than deep oversold conditions. This leaves room for further recovery amid continued uncertainty surrounding the Middle East conflict.

However, negative MACD readings suggest that any upward attempts may face weakening momentum. If the price fails to hold above 158.35 and breaks below it, this would weaken the current positive structure and signal a deeper correction.