Japanese Yen hangs near multi-week low vs USD amid economic risks due to Mideast tensions
- USD/JPY attracts fresh buyers at the start of a new week amid a combination of factors.
- Economic concerns due to the Mideast conflict undermine the JPY and support the pair.
- Geopolitical risks and Fed rate hike bets benefit the USD, contributing to the move up.
The USD/JPY pair kicks off the new week on a positive note and climbs back closer to the 159.50 level during the Asian session, eyeing a four-week top set last Thursday amid a combination of factors.
Data released earlier today showed that Japan's corporate Capital Spending flatlined in the first quarter, falling short of market expectations and marking a sharp deceleration from the 6.5% YoY rise seen in the final quarter of 2025. This comes on top of economic concerns stemming from the Middle East conflict and the continued energy supply disruption through the Strait of Hormuz, which, in turn, is seen undermining the Japanese Yen (JPY). Apart from this, a goodish pickup in the US Dollar (USD) demand turns out to be another factor supporting the USD/JPY pair.
Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, assist the safe-haven USD Index (DXY), which tracks the Greenback against a basket of currencies, to recover further from a two-week low, touched on Friday. The Israel Defense Forces (IDF) expanded its ground offensive in Lebanon, while Israel's Prime Minister Benjamin Netanyahu said that he has ordered troops to move further into Lebanon in the battle against the Iranian-backed Hezbollah. This comes on top of the US-Iran standoff over key issues and keeps geopolitical risks in play.
In fact, Iranian officials said a deal has not yet been finalized and that proposals are still being exchanged through Pakistani and other regional mediators. The main sticking points include Iran's nuclear program and the critical Strait of Hormuz. This keeps geopolitical risk premium in play and benefits the USD's reserve currency status. Moreover, a modest recovery in Crude Oil prices, from over a one-month low set on Friday, revives inflationary concerns and reaffirms hawkish US Federal Reserve (Fed) expectations. The outlook lends additional support to the buck and the USD/JPY pair.
However, speculations that Japanese authorities will step in again to prop up the domestic currency might hold back the JPY bears from placing aggressive bets and cap further upside for the currency pair. Traders now look forward to this week's important US macro releases scheduled at the start of a new month, starting with the ISM Manufacturing PMI later today, for some meaningful impetus. The aforementioned fundamental backdrop, meanwhile, seems tilted in favor of the USD/JPY bulls, though intervention fears warrant caution before positioning for any further appreciating move.
Japanese Yen FAQs
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.
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.
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.
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