Yen Slips as Middle East Strains Persist, Tokyo Ready to Act

Key Moments

USD/JPY trades around 157.15 in early European trading on Monday. The pair extends its upward move.
Middle East tensions rise after U.S. President Donald Trump rejects Iran’s latest peace proposal. This supports safe-haven flows and lifts oil prices.
Japanese officials signal that FX intervention remains possible. They also estimate recent operations at ¥4 trillion to ¥5 trillion during Golden Week.

Dollar-Yen Advances Amid Safe-Haven Demand

USD/JPY edges higher toward 157.15 in early European trading on Monday. The U.S. Dollar strengthens against the Euro as investors react to rising geopolitical risk in the Middle East.

Meanwhile, safe-haven demand increases across global markets. First, concerns over the Middle East escalate. Then, investors shift into the Dollar. As a result, major currencies face renewed pressure.

Tensions rise further after U.S. President Donald Trump rejects a new peace offer from Iran. He calls the proposal “totally unacceptable.” Consequently, oil prices move higher. In addition, risk sentiment weakens across currency markets.

Tasnim news agency reports Iran’s proposal in detail. It calls for a full ceasefire, an end to U.S. naval activity, and removal of sanctions. Moreover, it demands guarantees against further strikes on Iran.

Tokyo’s Intervention Stance Limits Upside

Despite Dollar strength, USD/JPY upside may stay limited. Japanese authorities continue to warn about possible intervention. Therefore, traders avoid aggressive Yen selling near recent highs.

Officials reportedly intervened during the Golden Week holiday. Market estimates place the scale between ¥4 trillion and ¥5 trillion ($32 billion). This highlights Tokyo’s willingness to act when needed.

In addition, Japan’s top FX official Atsushi Mimura confirms that intervention remains an option. He also states that IMF rules do not limit how often Japan can act. As a result, traders remain cautious on further Yen weakness.

“Intervention risk and strong official warnings made it unattractive to chase weakness near 160,” said Stefan Rittner, senior portfolio manager at Allianz Global Investors. However, he added that structural pressures still limit a strong Yen recovery despite cheap valuation levels.

Factor	Details
USD/JPY level	Near 157.15 in early European session on Monday
Recent intervention size	About ¥4 trillion to ¥5 trillion ($32 billion)
Policy signal	Mimura confirms intervention remains possible; IMF rules do not limit frequency

Japanese Yen: Structural Drivers and Policy Backdrop

The Japanese Yen (JPY) ranks among the most traded global currencies. Several key factors drive its value. These include Japan’s economic performance, Bank of Japan policy, interest rate gaps, and global risk sentiment.

Role of the Bank of Japan

The Bank of Japan (BoJ) plays a central role in Yen valuation. It sets monetary policy and can intervene directly in FX markets. Typically, officials use intervention to weaken the Yen when volatility rises.

However, the BoJ acts carefully. It avoids frequent intervention due to political sensitivities with trading partners. As a result, intervention usually occurs only in extreme market conditions.

Between 2013 and 2024, ultra-loose policy widened policy gaps with other central banks. This contributed to Yen weakness. More recently, gradual policy normalization has helped stabilize the currency.

Yield Differentials and Risk Sentiment

Interest rate gaps strongly influence USD/JPY. Over the past decade, U.S. yields stayed much higher than Japanese yields. This supported Dollar strength against the Yen.

However, this gap has started to narrow. The BoJ slowly shifts away from ultra-loose policy. At the same time, other central banks begin easing. Therefore, yield pressure on the Yen shows early signs of easing.

Finally, the Yen also acts as a safe-haven currency. During global stress, investors often buy Yen assets. As a result, the currency tends to strengthen when risk sentiment declines.