USD/JPY steadies above 159.00 with the US-Iran ceasefire into pressure

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The US Dollar (USD) is trading practically flat, right above 159.00 against the Japanese Yen (JPY) on Wednesday, consolidating Tuesday’s gains amid cautious markets. Most US Dollar crosses remain moving within previous ranges as the situation in the Middle East deteriorates.

USD/JPY consolidates above 159.00 after bouncing from the 158.50 area earlier this week.
Mounting concerns about the US-Iran ceasefire are supporting the US Dollar on Wednesday.
Yen bulls remain subdued as hopes of immediate BoJ tightening fade.

US President Donald Trump announced on Tuesday an unilateral extension of the ceasefire until the negotiation with Iran ends. The US military, however, maintains the blockade of Iranian ports, which is considered a violation of the ceasefire by Tehran.

Iranian authorities are keeping the world in suspense regarding their attendance at the second round of the peace talks, while reports of attacks by Iranian forces on ships attempting to cross the Strait of Hormuz elevate the pressure on a faltering peace process.

Beyond that, the Islamic Revolutionary Guard Corps (IRGC) has stepped up its tone against the US, threatening with “crushing attacks” on US interests in the Middle East if the hostilities resume, according to a report by The Guardian, citing the Iranian Tasnim news agency.

On Monday, a report by Reuters, citing sources close to the Bank of Japan (BoJ), suggested that the central bank is highly likely to leave its monetary policy unchanged at its meeting next week, and added pressure on the Yen. These sources, always according to Reuters, affirm that the final decision will be a close call, but that the committee is leaning to keep rates on hold, awaiting further data as prospects of a swift end to the Middle East conflict fade.

In the US, the Greenback drew some support from positive Retail Sales data and, above all, from a hawkish Federal Reserve (Fed) Chair nominee, Kevin Warsh, at the US Senate’s hearing committee. Warsh denied claims of being a White House puppet and underlined the importance of the central bank’s independence. The market welcomed his testimony.

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.