Key Moments
- USD/JPY moved back above the mid-161.00s during the Asian session, staying close to last Thursday’s highest level since July 2024.
- Market concerns over Middle East risks and energy supply disruptions through the Strait of Hormuz weighed on the Japanese Yen despite intervention rhetoric.
- A wide US-Japan rate differential and expectations for further Fed tightening continued to support the USD and the JPY carry trade.
Yen Weakness Persists as USD/JPY Reclaims Ground
USD/JPY attracted renewed buying at the start of the week, climbing back above the mid-161.00s during the Asian session. The pair remained close to the peak reached last Thursday, which was the highest level since July 2024, and showed little reaction to ongoing speculation about potential intervention by Japanese authorities.
Japan’s Finance Minister Satsuki Katayama reiterated on Monday that officials are prepared to respond to currency movements “at any time as needed.” Even so, the Japanese Yen continued to underperform, pressured by worries that Japan’s economy will stay under strain due to the Middle East conflict and ongoing disruptions to energy supplies through the Strait of Hormuz.
Geopolitical Tensions and Safe-Haven Dynamics
Geopolitical developments in the Middle East remained a key driver for markets. Iran announced that it had closed the Strait of Hormuz again after accusing the US and Israel of violating the ceasefire, stating that the move was in response to continued Israeli strikes in Lebanon. In addition, US President Donald Trump threatened fresh military action against Iran if Hezbollah continued attacks on Israel, highlighting the fragility of the diplomatic process and keeping a geopolitical risk premium in place.
These tensions overshadowed expectations for further tightening by the Bank of Japan and continued to undermine the Japanese Yen. At the same time, they supported demand for the US Dollar as a safe-haven asset, helping to stall the prior session’s pullback from the USD’s highest level since May 2025 and adding further upside momentum to USD/JPY.
BoJ Policy Outlook Versus US Rate Advantage
Recent communication from the Bank of Japan pointed to a more hawkish stance. Minutes from the April BoJ meeting indicated that some board members favored raising interest rates more quickly to prevent underlying inflation from overshooting. Separately, BoJ Deputy Governor Himino stated that the central bank will continue to hike rates based on economic, price, and financial conditions.
Despite this tone, Japan’s interest rates remained well below those of major peers such as the United States. The BoJ raised its policy rate to 1.00% last Tuesday, the highest level since 1995. In contrast, the US Federal Reserve kept its target range at 3.5% to 3.75% last Wednesday. This sizable rate gap has continued to fuel the JPY carry trade, reinforcing selling pressure on the Yen and providing additional support to USD/JPY.
Fed Expectations and Market Positioning
Following the Fed’s latest hawkish projections, traders increased bets that the US central bank will deliver at least one 25-basis-point rate hike in 2026 if inflation remains persistent. These expectations, alongside the broader bullish tone around the US Dollar and heightened geopolitical risk, have underpinned demand for the greenback against the Yen.
JPY Performance Against Major Currencies This Month
The following table shows this month’s percentage change in the Japanese Yen against a basket of major currencies. According to the data, the Japanese Yen has been strongest relative to the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.77% | 1.89% | 1.42% | 2.83% | 2.45% | 4.34% | 3.55% | |
| EUR | -1.77% | 0.12% | -0.33% | 1.04% | 0.67% | 2.55% | 1.75% | |
| GBP | -1.89% | -0.12% | -0.43% | 0.92% | 0.55% | 2.43% | 1.62% | |
| JPY | -1.42% | 0.33% | 0.43% | 1.42% | 1.06% | 2.90% | 2.09% | |
| CAD | -2.83% | -1.04% | -0.92% | -1.42% | -0.39% | 1.46% | 0.69% | |
| AUD | -2.45% | -0.67% | -0.55% | -1.06% | 0.39% | 1.87% | 1.11% | |
| NZD | -4.34% | -2.55% | -2.43% | -2.90% | -1.46% | -1.87% | -0.80% | |
| CHF | -3.55% | -1.75% | -1.62% | -2.09% | -0.69% | -1.11% | 0.80% |
The heat map illustrates percentage changes of major currencies against one another. The base currency is taken from the left-hand column and the quote currency from the top row. For example, selecting Japanese Yen from the left column and moving horizontally to the US Dollar cell shows the percentage change for JPY (base)/USD (quote).
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