USD/JPY hovers below 160 amid intervention fears and Middle-East tensions

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The Japanese Yen (JPY) trades under pressure against the US Dollar (USD) on Friday, with USD/JPY trimming most of its losses from earlier in the week as ongoing Oil supply disruptions linked to Middle East tensions keep a lid on the Yen’s recovery despite a softer Greenback.

USD/JPY edges higher as Middle East-driven Oil supply concerns weigh on the Yen, despite a softer US Dollar.
Geopolitical uncertainty around US-Iran negotiations and fragile ceasefire conditions keep markets cautious, limiting downside in the Greenback.
US inflation rises in March, while BoJ flags policy challenges if prolonged Middle East tensions slow growth and lift inflation.

At the time of writing, the pair is trading around 159.30, remaining confined within a one-month trading range as traders stay cautious near the 160.00 handle, a level that previously triggered intervention from Japanese authorities. Recent comments from Japanese officials have reinforced expectations that authorities may step in to curb excessive moves, keeping upside attempts in check.

Meanwhile, traders continue to monitor developments surrounding the US-Iran ceasefire, with attention turning to upcoming negotiations scheduled to take place in Pakistan over the weekend. However, the outlook remains uncertain, as conflicting signals from the United States and Iran continue to cloud the diplomatic path.

Iran’s Parliament Speaker Mohammad Bagher Ghalibaf said a ceasefire in Lebanon and the release of Iranian blocked assets must be secured before negotiations can proceed.

At the same time, US President Donald Trump told The New York Post that US warships are being reloaded with “the best ammunition” to resume strikes on Iran if peace talks fail, underscoring the fragile nature of the situation.

This backdrop is helping limit further downside in the US Dollar, which had weakened sharply to one-month lows following the initial ceasefire announcement. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.67 after touching an intraday low near 98.50, though it remains on track for its biggest decline since January.

On the data front, rising Oil prices pushed US inflation higher in March, with headline CPI rising 0.9% MoM, up sharply from 0.3% in the previous month, while annual inflation accelerated to 3.3% from 2.4%, with both readings matching expectations. The firm print reinforces the view that the Federal Reserve (Fed) is likely to remain on hold in the near term, as both sides of its dual mandate face risks.

In Japan, Bank of Japan Deputy Governor Ryozo Himino said on Friday that he does not believe the economy is in stagflation, but acknowledged a policy dilemma if a prolonged Middle East conflict were to slow growth while accelerating inflation.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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