Japanese Yen edges higher to near 159.00 as US, Iran signal peace progress

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The USD/JPY pair declines to near 158.90 during the early Asian session on Monday. Progress in talks between the United States (US) and Iran to bring an end to the Middle East conflict drags the US Dollar (USD) against the Japanese Yen (JPY).

USD/JPY softens to around 158.90 in Monday’s early Asian session.
The US and Iran have made progress, but have not yet finalized a peace deal to end the three-month war.
Traders are on high alert for another potential intervention from Japanese officials.

Senior US officials stated on Sunday that the US and Iran are closing in on a deal that would reopen the Strait of Hormuz, per Bloomberg. US Secretary of State Marco Rubio said that an agreement with Iran had garnered regional support, but key issues couldn’t be achieved “in 72 hours on the back of a napkin”. His comments came after Trump said he’s “not in a rush to rush into a deal” with Iran to end the three-month war.

Washington and Tehran agreed in principle to open the Strait of Hormuz again. Markets are still awaiting confirmation on whether the US government’s military blockade will be lifted.

Traders are on high alert as the pair moves within the 160.00 critical level, which is widely considered a "line in the sand" where Japanese authorities are expected to step in to conduct foreign exchange interventions. Finance Minister Satsuki Katayama said last week that Japan stands ready to act against excessive foreign exchange volatility at any time, while ensuring that any intervention is conducted in a way ‌that avoids pushing up US Treasury yields.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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