Japanese Yen strengthens on extended US-Iran ceasefire

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USD/JPY softens to around 159.35 in Thursday’s Asian session.
Trump said the ceasefire agreed on April 7 would stay in place indefinitely.
The BoJ is widely expected to maintain its policy rate at 0.75% during the April meeting.

The USD/JPY pair loses traction to near 159.35 during the Asian trading hours on Thursday. US President Donald Trump’s extension of a ceasefire with Iran weighs on the US Dollar (USD) against the Japanese Yen (JPY). The preliminary reading of the S&P Global Purchasing Managers Index (PMI) will be published later on Thursday.

Trump said on Tuesday that he is extending the ceasefire with Iran while awaiting a “unified proposal” from Tehran. Iran vowed not to reopen the Strait of Hormuz amid the US naval blockade despite the ceasefire extension. Earlier, the White House press secretary Karoline Leavitt said that she doesn’t view Iran’s assertion that it seized two ships in the Strait of Hormuz as a violation of the ceasefire.

Meanwhile, Lebanon will push for a one-month extension of the current truce with Israel during a new round of meetings in Washington on Thursday. Talks between Lebanon and Israel on April 14 were their first in decades, and the US soon after announced the 10-day truce, set to expire on Sunday.

Bank of Japan (BoJ) Governor Kazuo Ueda avoided signaling an April rate hike, citing high economic uncertainty from the "negative supply shock" of the war. Financial markets now widely anticipate the Japanese central bank to hold rates steady until at least June 2026.

Markets are now pricing in nearly a 72%-77% probability of a rate increase in May, with expectations for a hike of nearly 99% by June, according to Reuters.

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.