Japanese Yen hits four-week low vs firmer USD as Hormuz risks counter intervention fears

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The USD/JPY pair trades with a positive bias for the third straight day and touches a four-week high, around the 159.60 region, during the Asian session on Thursday.

USD/JPY attracts buyers for the third straight day, though JPY intervention fears cap gains.
Economic concerns stemming from Hormuz risk undermine the JPY and support spot prices.
Mideast tensions and Fed rate hike bets benefit the USD ahead of the crucial US macro data.

The USD/JPY pair trades with a positive bias for the third straight day and touches a four-week high, around the 159.60 region, during the Asian session on Thursday. The Japanese Yen (JPY) continues with its relative underperformance amid economic concerns stemming from the ongoing Middle East conflict. This, along with a broadly firmer US Dollar (USD), acts as a tailwind for spot prices, though intervention fears might cap further gains ahead of important US macro releases.

Investors remain worried that Japan's economy will come under substantial strain due to the continued disruption to energy supplies through the Strait of Hormuz. In fact, shipping traffic through the strategic waterway has drastically reduced since the start of the Middle East conflict due to Iran's restrictions on movements and the US naval blockade of Iranian ports. Adding to this, renewed US strikes on Iran raise the risk of a further escalation of tensions in the region, which continues to undermine the JPY and supports the USD/JPY pair.

A US official told Reuters that the US military carried out fresh strikes in Iran on Wednesday, targeting a military site that posed a threat to American forces and commercial maritime traffic in the Strait of Hormuz. The US official also said American forces intercepted and shot down multiple Iranian drones that posed a similar threat. Moreover, US President Donald Trump said that he is not satisfied with the terms negotiated with Iran and that he won’t be rushed into a deal, dampening hopes for a diplomatic solution to end a three-month-old war.

The latest developments, in turn, underpin the Greenback's reserve currency status amid bets that the US Federal Reserve (Fed) will hike interest rates in 2026 amid inflationary concerns and further supports the USD/JPY pair. The JPY bears, however, seem hesitant amid speculations that Japanese authorities will step in again to prop up the domestic currency. Furthermore, traders might opt to move to the sidelines ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index and the Preliminary US GDP report later today.

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.