Japanese Yen declines as US Dollar gains on Middle East conflict

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USD/JPY extends its winning streak for the third successive session, trading around 158.60 during the Asian hours on Monday. The pair rises as the US Dollar (USD) gains on safe-haven demand. The Iran war has entered its second week with no clear resolution in sight.

USD/JPY rises as safe-haven demand boosts the US Dollar amid the second week of the Iran war.
US Dollar Index rises toward three-month high as WTI Oil price surges above $100 per barrel.
Japan’s Current Account surplus was ¥941.6B in January, below the ¥960.0B expected.

Mojtaba Khamenei was appointed Iran’s supreme leader just over a week after his father, Ali Khamenei, was killed in US-Israeli strikes, signaling that hardliners remain firmly in control. Last week, US President Donald Trump said the appointment would be “unacceptable” and suggested Washington should have a role in selecting Iran’s next supreme leader.

The Greenback also finds support as West Texas Intermediate (WTI) crude Oil price surges above $100.00 per barrel amid concerns that a prolonged Middle East conflict could disrupt global energy supplies over the longer term. Trump added that the rise in oil prices is a “very small price to pay” for defeating Iran and ensuring global peace.

Moreover, the US Dollar receives additional support as traders revise inflation expectations following the outbreak of hostilities last week, reinforcing bets that the Federal Reserve may delay interest rate cuts.

Japan’s Labor Cash Earnings increased 3% year-over-year in January 2026, following a 2.5% increase in December 2025. Meanwhile, Japan’s Current Account surplus came in at ¥941.6B in January, below the ¥960.0B expected, compared with the previous ¥728.8B.

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.