Key Moments
- USD/JPY climbs from Monday’s 158.00 low to trade above 159.50 amid risk-off flows.
- Iran rejects a US 15-point peace proposal, fueling broad USD strength.
- Rising crude oil prices weigh on Japan’s fiscal position, limiting Yen demand, per OCBC analysts.
Dollar Extends Rally as Safe-Haven Flows Dominate
The US Dollar (USD) continues to push higher against the Japanese Yen (JPY) on Thursday. The pair has climbed from Monday’s 158.00 low and now trades above 159.50, nearing the 160.00 mark.
Geopolitical tensions in the Middle East are driving demand for safe-haven assets. Reduced chances of a US-Iran peace deal are encouraging investors to favor the USD over other currencies.
Middle East Developments Drive Risk-Off Mood
Iran rejected a 15-point peace proposal from the United States. Foreign Minister Abbas Araghchi confirmed on Iranian TV that negotiations would not occur while hostilities continue.
Meanwhile, Israel and Iran continue attacks, and the Strait of Hormuz remains closed for the fourth consecutive week. These developments are weakening risk appetite and pushing the USD higher across markets.
Japan’s Vulnerability to Higher Oil Prices
Rising crude oil prices pose additional challenges for Japan’s economy. OCBC analysts note that higher energy costs worsen the terms of trade and strain the country’s fiscal position.
Japan’s reliance on Middle Eastern energy increases the Yen’s vulnerability. Even as a traditional safe-haven currency, the Yen is now sensitive to the US-Iran conflict.
| Factor | Impact on Japan / JPY |
|---|---|
| Rising crude oil prices | Worsens terms of trade, pressures fiscal stability |
| Dependence on Middle Eastern energy | Increases vulnerability to US-Iran conflict |
| Traditional safe-haven role of JPY | Offset by energy and fiscal risks |
BoJ Minutes Offer Limited Support
Recent Bank of Japan (BoJ) minutes offered little help for the Yen. Policymakers discussed potential tightening amid rising inflation, but no material support emerged in currency markets.
US Data Calendar and Market Drivers
Traders are watching US economic data, including Initial Jobless Claims and Federal Reserve speeches. However, the main driver remains geopolitical developments in the Middle East.
Understanding Risk Sentiment
“Risk-On” vs. “Risk-Off”
“Risk-on” refers to periods when investors favor higher-risk assets due to optimism. “Risk-off” occurs when investors move toward safer assets, such as government bonds, gold, and safe-haven currencies, due to uncertainty.
Key Assets to Watch
During “risk-on,” stock markets and most commodities (excluding gold) typically rise. Commodity-exporting currencies and cryptocurrencies also tend to gain. In “risk-off” periods, government bonds, gold, and safe-haven currencies such as JPY, CHF, and USD benefit.
Currencies in Risk-On Conditions
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD), and smaller FX like the Ruble (RUB) and South African Rand (ZAR) generally strengthen during risk-on periods. This is because their economies rely heavily on commodity exports, which gain from rising demand.
Currencies in Risk-Off Conditions
The US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF) typically rise in risk-off markets. The USD benefits from its role as the world’s reserve currency and from demand for US government debt. The Yen gains from domestic bond demand, and the Swiss Franc is supported by strict banking rules protecting capital.
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