Yen Steady as Risks and Intervention Fears Lift USD/JPY

Key Moments

Dollar-Yen Stable Near 157.25 in Asian Trade

The USD/JPY pair is trading broadly flat around 157.25 in early Asian hours on Tuesday. Currency moves are muted even as geopolitical headlines from the Middle East push oil prices higher and stoke concerns about regional instability. Investors are also awaiting the release of the US April ISM Services Purchasing Managers Index (PMI) later on Tuesday, which could influence sentiment toward the US Dollar.

Middle East Tensions Bolster Safe-Haven Demand for the Dollar

Developments in the Middle East are adding a layer of support to the greenback. On Monday, the United Arab Emirates reported that it had intercepted multiple missiles launched from Iran. According to the report, this marked the first activation of the UAE’s missile alert system since the US-Iran ceasefire commenced last month.

In parallel, political rhetoric has intensified. US President Donald Trump on Monday warned Iran that it will be “blown off the face of the earth” if it targets US ships that are protecting commercial vessels transiting the strait.

Iran’s Foreign Minister Abbas Araghchi, by contrast, emphasized the need for a non-military approach, stating that the situation in the Strait of Hormuz makes it “clear that there’s no military solution to a political crisis.” Overall, any signs of escalating tensions in the Middle East are seen as potentially supportive for the US Dollar against the Japanese Yen.

Intervention Concerns Keep Traders Alert on JPY

Beyond geopolitical risk, the prospect of renewed action by Japanese authorities is also shaping positioning in USD/JPY. Market participants remain cautious after what is described as last week’s intervention aimed at limiting Yen depreciation.

Japanese Finance Minister Satsuki Katayama reinforced that stance, noting that Japan can respond to speculative movements in the foreign-exchange market. This has left traders on edge about the possibility of further official measures if Yen weakness accelerates.

Fundamental Drivers of 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.

Role of the Bank of Japan in Currency Dynamics

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.

Impact of Yield Differentials and Risk Sentiment

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.

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.