USD/JPY edges up above 159.00 as the Strait of Hormuz curbs risk appetite

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The US Dollar (USD) has retraced previous losses against the Japanese Yen (JPY) on Thursday, returning to levels right above 159.00 at the time of writing, as the US-Iran rift over the Strait of Hormuz dampens optimism about the peace process.

USD/JPY picks up above 159.00 amid a broad-based US Dollar recovery.
The standoff about the Strait of Hormuz casts doubt on the US-Iran peace talks.
Japanese Finance Minister Satsuki Takayama launched a subtle intervention warning on Wednesday.

The Greenback is trimming losses against its main peers in Thursday’s European session. Traders maintain a moderate risk appetite, but threats by Iranian authorities to shut traffic in the Red Sea and the Gulf of Oman if the US blockade of Iranian ports continues have dampened earlier optimism.

Previously, markets had welcomed US President Trump’s comments confirming negotiations with Iran, which, he said, are likely to lead to a new round of talks in the coming days. Apart from that, Israel’s cabinet security member, Galia Gamliel, said earlier on Thursday that Prime Minister Benjamin Netanyahu will meet Lebanese President Joseph Aoun, which might pave the way for a resolution of the Middle East conflict.

In Japan, Finance Minister Satsuki Takayama affirmed that her country and the US have agreed to strengthen communication on exchange rates, following a meeting with US Treasury Secretary Scott Bessent. These comments are a clear warning of Tokyo’s commitment to stem excessive JPY weakness, but the impact on the market has been marginal.

Moving away from geopolitics, the US macroeconomic docket provides some distraction on Thursday. The Philadelphia Fed Manufacturing Survey from April, Industrial Production data from March, and the speeches of the New York Fed President John Williams and Board member Stephen Miran are likely to attract some attention later in the day.

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.