Key Moments
- USD/JPY trades around 158.90, hovering near its highest levels of the year with limited intraday movement.
- Middle East tensions and efforts to disrupt traffic through the Strait of Hormuz are keeping safe-haven demand for JPY in focus.
- Markets expect the Fed to keep rates unchanged on March 18, while the BoJ is seen moving gradually toward policy normalization.
USD/JPY Steadies Near Yearly Highs
USD/JPY is trading close to 158.90 on Thursday at the time of writing, showing almost no change on the session. The pair remains near its highs of the year, underpinned by a firm US Dollar despite rising geopolitical tensions and increasing expectations that Japan will continue its slow shift away from ultra-easy monetary policy.
Middle East Tensions and Safe-Haven Dynamics
Developments in the Middle East are a key focus for markets. Iran has launched what it called its most intense operation since the start of the war, including efforts to disrupt traffic through the Strait of Hormuz, a vital route for global Oil shipments. In parallel, the Israel Defense Forces reported a large-scale series of strikes against Hezbollah-related infrastructure.
Market participants are closely following how the conflict evolves. Any further escalation involving Iran, its regional neighbors, the United States (US) or Israel could boost demand for safe-haven assets such as the Japanese Yen (JPY), which in turn could pressure USD/JPY in the near term.
US Inflation Data and Fed Policy Expectations
On the macroeconomic side, data released Wednesday by the Bureau of Labor Statistics showed that the US Consumer Price Index (CPI) rose 0.3% month-on-month (MoM) in February, compared with 0.2% previously, matching market expectations. Core CPI, which excludes food and energy components, increased by 0.2% MoM after a 0.3% gain, also in line with forecasts.
Market reaction to the report was muted, with investors concentrating more on rising Oil prices and the possibility that higher energy costs could lift headline inflation in the coming months.
Market pricing now points to a broad expectation that the Federal Reserve (Fed) will leave interest rates unchanged at its upcoming policy meeting on March 18. Nonetheless, persistent geopolitical risks and the outlook for energy-driven inflation continue to lend support to the US Dollar.
Views from Financial Institutions on USD/JPY
Several institutions are highlighting risks around current USD/JPY levels. Analysts at DBS point to a key resistance band in the 159-160 area, noting that the Bank of Japan (BoJ) could deliver a hawkish hold at its March 19 meeting as it advances its policy normalization process. DBS also suggests that a diplomatic easing of Middle East tensions, potentially tied to upcoming talks between the US and China, could lower energy prices and erode some of the current fundamental backing for USD/JPY.
Analysts at MUFG, by contrast, emphasize that higher energy costs amount to a negative terms-of-trade shock for Japan, which could prompt policymakers to be more tolerant of a weaker JPY in the near term. In such a scenario, the bar for foreign exchange intervention may move higher, even as expectations build that the BoJ could implement another rate hike as early as April.
US Dollar Performance Against Major Currencies
The table below shows the percentage change of the US Dollar (USD) against major currencies today. According to the data, the US Dollar has shown the strongest performance versus the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | – | 0.29% | 0.31% | -0.03% | 0.07% | 0.37% | 0.36% | 0.27% |
| EUR | -0.29% | – | 0.02% | -0.31% | -0.22% | 0.07% | 0.07% | -0.03% |
| GBP | -0.31% | -0.02% | – | -0.34% | -0.23% | 0.06% | 0.06% | -0.04% |
| JPY | 0.03% | 0.31% | 0.34% | – | 0.08% | 0.39% | 0.36% | 0.26% |
| CAD | -0.07% | 0.22% | 0.23% | -0.08% | – | 0.30% | 0.29% | 0.19% |
| AUD | -0.37% | -0.07% | -0.06% | -0.39% | -0.30% | – | -0.00% | -0.10% |
| NZD | -0.36% | -0.07% | -0.06% | -0.36% | -0.29% | 0.00% | – | -0.12% |
| CHF | -0.27% | 0.03% | 0.04% | -0.26% | -0.19% | 0.10% | 0.12% | – |
The heat map shows percentage moves of each major currency pair, where the base currency is taken from the left-hand column and the quote currency from the top row. For instance, selecting the US Dollar as the base and moving across to the Japanese Yen cell gives the percentage change for USD (base)/JPY (quote).
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