Yen Slides as Dollar Strength and Intervention Risks Rise

Key Moments

USD/JPY Advances as Geopolitical Tensions Weigh on Yen

The USD/JPY pair is trading firmer around 159.00 during the early European session on Monday, with the Japanese Yen under pressure against the US Dollar. The move comes as renewed frictions between the United States and Iran, alongside the closure of the Strait of Hormuz, diminish support for the Yen and favor the Greenback.

According to the Guardian, US President Donald Trump said on Sunday that US Marines had taken control of a vessel attempting to pass through an American blockade targeting Iranian ports. In response, Iran’s Foreign Ministry spokesman Esmail Baghaei stated that the US blockade of Iran’s ports and coastline constitutes an act of aggression and a breach of the ceasefire. These ongoing US-Iran tensions are helping to maintain demand for the US Dollar in the near term.

BoJ Policy Outlook Damps Expectations for Near-Term Rate Hike

Comments from Bank of Japan (BoJ) Governor Kazuo Ueda at the end of last week are also influencing sentiment toward the Yen. On Friday, Ueda refrained from indicating any likelihood of a rate increase in April, pointing to elevated economic uncertainty stemming from what he described as the “negative supply shock” of the war.

Following his remarks, market participants now broadly expect the BoJ to keep policy rates unchanged until at least June 2026. This outlook for a prolonged period of steady rates contrasts with geopolitical support for the US Dollar and continues to limit upside for the Yen.

Intervention Concerns Rise as USD/JPY Nears Critical Levels

Despite the support for USD/JPY, the pair is trading close to levels that market participants view as sensitive for Japanese authorities, intensifying concerns about possible foreign-exchange intervention. Finance Minister Satsuki Katayama emphasized that officials are closely monitoring market developments with a “high sense of urgency” and stand ready to act against speculative moves.

Fundamental Drivers of the Japanese Yen

The Japanese Yen (JPY) is among the most actively traded currencies globally. Its valuation is generally tied to the performance of Japan’s economy, but more specifically to Bank of Japan policy decisions, the spread between Japanese and US bond yields, and overall risk sentiment in financial markets, among other variables.

Role of the Bank of Japan in Currency Dynamics

One of the Bank of Japan’s responsibilities is the management of currency stability, making its actions highly relevant for the Yen. The BoJ has, at times, intervened directly in foreign-exchange markets, typically to curb Yen strength, though it tends to avoid frequent intervention due to political sensitivities with key trading partners.

The central bank’s ultra-loose policy stance between 2013 and 2024 led to a depreciation of the Yen relative to many major currencies, driven by increasing policy divergence between the BoJ and other central banks. More recently, the gradual withdrawal of this ultra-loose stance has provided some degree of support for the Japanese currency.

Yield Differentials and Risk Sentiment

Over the past decade, the BoJ’s commitment to very accommodative monetary policy contributed to a widening gap between Japanese and US bond yields, particularly in the 10-year segment. This differential favored the US Dollar over the Yen. The BoJ’s decision in 2024 to slowly move away from its ultra-loose framework, together with interest-rate cuts by other major central banks, has begun to narrow this spread.

The Yen is also widely viewed as a safe-haven asset. During periods of market stress, investors often seek the Yen for its perceived stability and reliability, which can lead to Yen appreciation versus currencies seen as riskier. Conversely, when market conditions are calm and risk appetite is strong, the Yen may weaken as investors rotate into higher-yielding or riskier assets.