USD/JPY Hits 40-Year High as Oil Surge and Fed Hawkishness Fuel Dollar

USD/JPY has surged to a 40-year high as escalating Middle East tensions and hawkish Federal Reserve expectations drive a powerful dollar rally alongside rising US bond yields. WTI crude oil has broken above $90 per barrel for the first time in six weeks, amplifying risk-off sentiment and weighing heavily on the Japanese yen, which remains vulnerable due to the Bank of Japan's ultra-accommodative stance. The dollar index has climbed broadly, supported by repricing of Fed rate expectations toward a higher-for-longer trajectory. In Europe, ECB policy remains in focus ahead of today's rate decision, where Deutsche Bank expects a pause before a final hike in September, contingent on inflation data surprising to the upside. French business climate data showed modest improvement, extending a recent rebound. Alphabet's earnings reaction provided mixed signals for risk appetite, cooling an otherwise selective earnings season. Traders should monitor key resistance levels on USD/JPY, as extended positioning raises the risk of intervention rhetoric from Japanese officials. Oil-linked currencies such as CAD may benefit from sustained crude strength, while EUR faces headwinds from ECB policy uncertainty.