Key Moments
- USD/JPY trades higher for a third consecutive session, reaching a four-week peak near 159.60 in Asian trading on Thursday.
- Concerns over disruptions to energy flows through the Strait of Hormuz weigh on the Japanese Yen and bolster USD/JPY.
- Market participants eye US PCE inflation and preliminary GDP data while watching for potential Japanese intervention in FX markets.
USD/JPY Extends Rally but Faces Intervention Ceiling
The USD/JPY pair is trading with an upward bias for the third straight session, climbing to a four-week high around the 159.60 area during Asian hours on Thursday. The Japanese Yen (JPY) continues to lag as investors focus on economic risks stemming from the conflict in the Middle East. That backdrop, combined with a generally stronger US Dollar (USD), is supporting the cross, although persistent concerns about possible Japanese intervention are limiting the upside ahead of key US data releases.
Hormuz Supply Risks Pressure Yen
Market participants are increasingly concerned that Japan’s economy could face significant pressure from ongoing disruptions to energy supplies transiting the Strait of Hormuz. Shipping activity through this key channel has fallen sharply since the onset of the Middle East conflict, amid Iran’s restrictions on movements and a US naval blockade of Iranian ports. These constraints on maritime flows, and the broader uncertainty they generate, are weighing on the JPY and underpinning USD/JPY.
Adding to the tension, renewed US military action against Iran has heightened fears of further escalation in the region. Those geopolitical risks continue to drive demand away from the Yen and toward the Dollar.
Fresh US Strikes and Diminished Diplomatic Hopes
A US official told Reuters that US forces conducted additional strikes in Iran on Wednesday, hitting a military target deemed a threat to American personnel and commercial vessels in the Strait of Hormuz. The same official said that US forces also intercepted and destroyed multiple Iranian drones that posed a similar risk.
At the political level, US President Donald Trump said that he is not satisfied with the terms negotiated with Iran and that he won’t be rushed into a deal, a stance that reduces expectations for a diplomatic resolution to a three-month-old war.
Fed Outlook Supports Dollar; Intervention Risks Temper Yen Selling
These latest developments are reinforcing the US Dollar’s role as a reserve currency amid expectations that the US Federal Reserve will raise interest rates in 2026 in response to inflation concerns. That policy backdrop is providing additional support to USD/JPY.
At the same time, JPY sellers are showing caution. There is ongoing speculation that Japanese authorities could step in again to support the domestic currency, which is helping to cap the pace of Yen depreciation. Many traders are also reluctant to add aggressive positions ahead of the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index and the preliminary US GDP figures later in the day.
Key Drivers of the Japanese Yen
The article also provides a broader overview of the main forces influencing the Japanese Yen.
| Factor | Description |
|---|---|
| Macro and monetary policy | The Yen’s value is broadly shaped by Japan’s economic performance, with particular emphasis on Bank of Japan (BoJ) policy decisions, yield differentials between Japanese and US bonds, and overall risk sentiment in global markets. |
| Bank of Japan actions | One of the BoJ’s mandates is currency control, and it has at times intervened directly in FX markets, typically to weaken the Yen, though such actions are infrequent due to political sensitivities with key trading partners. The BoJ’s ultra-loose stance between 2013 and 2024 led to sustained Yen weakness as policy diverged from other major central banks. More recently, the gradual unwinding of that approach has offered some support to the currency. |
| Yield differentials | The BoJ’s prolonged ultra-loose policy widened the gap between 10-year US and Japanese bond yields, favoring the Dollar over the Yen. The decision in 2024 to start moving away from that stance, combined with rate cuts by other major central banks, has begun to narrow this spread. |
| Safe-haven dynamics | The Yen is often perceived as a safe-haven asset. During periods of market stress, investors tend to rotate into the currency, viewing it as relatively stable and reliable. As a result, episodes of turbulence typically strengthen the Yen against currencies considered riskier. |
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