Japanese Yen edges lower on renewed US

Japanese Yen edges lower on renewed US–Iran tensions

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The USD/JPY pair holds positive ground near 159.10 during the early Asian session on Monday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) amid renewed tensions between the US and Iran during more than seven weeks of war in the Middle East.

USD/JPY gains ground around 159.10 in Monday’s early Asian session.
Iran stated that there are no plans for Tehran’s negotiators to attend the talks.
Japanese authorities are on high alert for foreign exchange intervention.

Iran denied it would participate in new peace talks with the US, hours after US President Donald Trump said its negotiators would head to Pakistan on Monday for a second round of peace talks with Iran, per Bloomberg.

Trump said the US Navy fired upon and seized an Iranian-flagged cargo ship, while Tehran warned that ships approaching the strait would be treated as violating a ceasefire. Several vessels were forced to abandon crossings only hours after Tehran had said the waterway was open. Escalating tensions between the US and Iran could provide some support to the Greenback against the JPY in the near term.

On the other hand, verbal intervention from Japanese authorities might help limit the JPY’s losses. Japan’s Finance Minister Satsuki Katayama said last week that she’s held close discussions on foreign exchange issues with US Treasury Secretary Scott Bessent and that authorities are prepared for “bold” action if needed.

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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