USD/JPY edges up to 159.00 with investors pondering news on Iran war

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The US Dollar (USD) is posting moderate gains against the Japanese Yen (JPY) on Wednesday, returning to levels past 159.00 to partially reverse the 0.5% depreciation witnessed over the last two days.

USD/JPI returns above 159.00 after bouncing from 158.60 lows on Tuesday.
The Greenback trims some losses as investors ponder mixed news on Iran.
Analysts at the UOB bank see the pair likely to test 158.00 in the coming weeks.

The US Dollar (USD) is posting moderate gains against the Japanese Yen (JPY) on Wednesday, returning to levels past 159.00 to partially reverse the 0.5% depreciation witnessed over the last two days. The Greenback is showing a frail recovery against its main peers, as investors consider contradictory news about Iran’s peace process.

US President Trump has shown optimism about the war ending "very soon", following comments suggesting that the US and Iran delegations might return to the conversation table in the coming days.

Later on Wednesday, a report by Associated Press (AP) said that mediators are moving closer to extending the two-week ceasefire that expires next week.

US is considering sending more troops

The US military, on the other hand, announced earlier on the day that the blockade of the Strait of Hormuz had been “fully implemented”, a measure that Iran condemned as “illegal and amounting to piracy.” Apart from that, the Washington Post reported that the US administration is considering the deployment of thousands of additional troops to the Middle East.

Currency analysts at the United Overseas Bank (UOB), however, expect the pair to extend its broader bearish trend, aiming to 158.00 in the coming weeks: "Yesterday, USD broke slightly below 158.70 as it dropped to a low of 158.59. Downward momentum is starting to build, and USD could potentially drop below 158.50 and test 158.00. To sustain the buildup in momentum, USD must hold below the ‘strong resistance’ level, now at 159.50."

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.