Japanese Yen strengthens above 158.50 on safe-haven demand as Iran conflict intensifies

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The USD/JPY pair trades with mild losses near 158.85 during the early Asian session on Thursday. The Japanese Yen (JPY) edges higher against the US Dollar (USD) amid escalating war in the Middle East. The US weekly Initial Jobless Claims report is due later on Thursday.

USD/JPY loses ground to around 158.85 in Thursday’s early Asian session.
Iran has launched its “most intense operation since the beginning of the war, boosting safe-haven flows.
US CPI rose 0.3% MoM in February, as expected.

Iran has launched its “most intense operation since the beginning of the war. Tehran stepped up its efforts to halt traffic through the Strait of Hormuz, the critical oil conduit. The US military has turned down requests to escort tankers or other civilian ships through the strait, with defense officials saying it won't do so until the threat of Iranian fire has eased. In the meantime, the Israel Defense Forces said it launched a “wide-scale wave of strikes” targeting Hezbollah infrastructure.

Traders will closely monitor the developments surrounding the Iran war. Any signs of rising tensions between Iran and its neighbors, the US and Israel, could boost safe-haven currencies such as the JPY and act as a headwind for the pair in the near term.

Data released by the Bureau of Labor Statistics on Wednesday showed that the US Consumer Price Index (CPI) rose 0.3% MoM versus 0.2% prior. This figure came in line with expectations. Stripping out volatile food and energy prices, the core CPI increased 0.2% MoM in February, compared to 0.3% in the previous reading, also in line with the estimates.

The US Federal Reserve (Fed) is expected to hold the interest rate at its upcoming policy meeting on March 18. Traders were looking through the March CPI inflation report and focused on a rise in oil prices that could push headline inflation higher in the coming months.

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.