Yen Near Six-Week Lows as Intervention Risks Loom

Key Moments

USD/JPY traded around 160.50 in Asian dealings after touching a six-week high of 160.56 earlier on Thursday.
Japan’s finance minister reiterated authorities remain ready to take decisive measures to stabilize the currency market.
Investors are watching for a widely expected Bank of Japan rate hike amid surging energy costs linked to escalating Middle East tensions.

USD/JPY Steadies Near Recent Highs

USD/JPY was broadly unchanged during Asian trading, hovering near 160.50 after advancing for two consecutive sessions. The pair showed limited movement after earlier reaching a six-week high of 160.56 on Thursday, a move that market participants may associate with potential foreign-exchange intervention by Japanese authorities.

Official Signals on Currency Intervention

Finance Minister Satsuki Katayama said earlier this week that the government is closely monitoring developments in the currency market. She underscored that Japan’s position has not shifted regarding its readiness to take decisive action if required to safeguard market stability.

Policy Outlook: BoJ Rate Expectations and Energy Pressures

The Bank of Japan (BoJ) is widely expected to raise interest rates next week as policymakers contend with sharply rising energy costs tied to the conflict in the Middle East. Tensions intensified after Iran’s Islamic Revolutionary Guard Corps (IRGC) declared an immediate and complete closure of the Strait of Hormuz, stating that any commercial or oil vessels attempting to pass through the strait would be targeted.

Safe-Haven Flows and Middle East Escalation

USD/JPY could see further upside if the US Dollar (USD) strengthens on renewed safe-haven demand stemming from the ongoing Middle East conflict. The Israeli military reported that the Home Front Command, the civil defense arm of the Israel Defense Forces (IDF), issued an early warning following launches from Lebanon toward northern Israel.

US Central Command (CENTCOM) confirmed that the United States began airstrikes in Iran on Wednesday. In addition, President Donald Trump warned of severe military action if an interim peace deal is not completed, accusing Tehran of delaying progress. Iranian officials, for their part, insist they will not retreat.

Key Drivers of the Japanese Yen

The article also provides background on the main forces influencing the Japanese Yen (JPY), including Bank of Japan policy, yield differentials, and risk sentiment.

Factor	Description
Bank of Japan policy and intervention	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.
Yield differential vs US bonds	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.
Global risk sentiment	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.