Japanese Yen languishes near four-week low vs USD as Iran risks counter intervention fears

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The USD/JPY pair trades with a mild negative bias during the Asian session on Wednesday, though it remains close to a nearly four-week high touched the previous day.

USD/JPY pauses its recent strong move up as intervention fears lend some support to the JPY.
Economic concerns stemming from Hormuz risks hold back the JPY bulls from placing fresh bets.
Geopolitical uncertainties and hawkish Fed expectations underpin the USD, supporting the pair.

The USD/JPY pair trades with a mild negative bias during the Asian session on Wednesday, though it remains close to a nearly four-week high touched the previous day. Moreover, the fundamental backdrop and the lack of follow-through selling warrant some caution before confirming that spot prices have topped out in the near term.

Traders turn cautious amid speculations that Japanese authorities will step in again to prop up the domestic currency. Apart from this, Bank of Japan (BoJ) Deputy Governor Ryozo Himino's hawkish comments on Tuesday, saying that the central bank ‌will consider the timing and pace of interest rate hikes with an eye on the fallout from the Middle East conflict, support the Japanese Yen. This, in turn, acts as a headwind for the USD/JPY pair.

The JPY bulls, however, seem hesitant amid worries that Japan's economy will come under substantial strains due to continued disruptions to energy supplies from the Middle East. In the latest development, Iran’s Foreign Ministry condemned renewed US attacks as a violation of a ceasefire that’s been in place since early April. Furthermore, the Islamic Revolutionary Guard Corps (IRGC) threatened to retaliate. This keeps geopolitical risk in play and caps the JPY.

Meanwhile, the US-Iran standoff, along with bets that the US Federal Reserve (Fed) will interest hike rates in 2026, continue to underpin the US Dollar's (USD) reserve currency status. This further contributes to limiting the downside for the USD/JPY pair. In the absence of any relevant market-moving economic releases, the fundamental backdrop makes it prudent to wait for strong follow-through selling in order to back the case for any meaningful corrective decline.

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.