USD/JPY hits session highs near 158.00 on rising US-Iran tensions

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The US Dollar (USD) keeps crawling higher against the Japanese Yen (JPY) for the third consecutive day on Tuesday. The pair has reached the upper range of the 157.00s, trading at 157.65 at the time of writing, as the escalating tensions in the Strait of Hormuz boost the safe-haven US Dollar.

USD/JPY appreciates for the third consecutive day and approaches 158.00.
Concerns about the escalating US-Iran tensions are boosting support for the US Dollar
High Oil prices and hawkish global central banks are adding pressure on the Japanese Yen.

US President Donald Trump stirred the hornets’ hive on Monday, vowing that the US military would help free stranded vessels in the Strait of Hormuz. Two vessels are reported to have crossed the waterway, while other ships attempting to follow reported fires and explosions, and an Oil port in the United Arab Emirates (UAE) has been hit, allegedly by Iranian missiles.

Furthermore, Iran's Parliament Speaker Mohammad Bagher Ghalibaf affirmed that a “new equation” has solidified the closure of the Strait of Hormuz and has blamed the US and its allies for violating the ceasefire and imposing a blockade.

Against this backdrop, Oil prices remain near long-term highs. The US benchmark West Texas Intermediate (WTI) barrel trades above $101 at the time of writing, while the Brent barrel remains above $110, adding strain to the oil-importing Japanese economy and weighing on the JPY

The Yen has been trimming gains following a sharp jump on Thursday, highly likely due to an intervention by the Japanese authorities. Tokyo stepped in to support the JPY as the USD/JPY crossed the 160.00 mark, which is considered a line in the sand for the Japanese Ministry of Finance.

Investors, however, hold doubts about the sustainability of Tokyo interventions in the long run, as fundamentals are set against the Yen. The high crude prices, coupled with the Bank of Japan's (BoJ) low interest rates, in a context of higher global bond yields as major central banks turn hawkish, are highly likely to keep the Yen on the defensive.

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.