USD/JPY recovers after brief volatility triggered by comments from US Treasury Secretary Bessent

• USD/JPY extends gains for a seventh straight day as a stronger US Dollar and elevated Oil prices continue to pressure the Japanese Yen.
• Traders remain cautious as USD/JPY moves back toward the 160.00 level after the suspected intervention-driven pullback in late April.
• Stalled US-Iran negotiations continue to support the US Dollar, with the DXY hovering near more than one-month highs around 99.25.

USD/JPY extends gains on Tuesday, rising for the seventh straight day as broad US Dollar (USD) strength and higher Oil prices linked to the US-Iran war continue to pressure the Japanese Yen (JPY). At the time of writing, the pair is trading around 159.18, recovering most of the losses triggered by the suspected intervention move in late April.

The pair saw heightened volatility as the key 160.00 level moved back into focus for markets. Comments from US Treasury Secretary Scott Bessent briefly triggered a pullback after he said excessive foreign exchange volatility was undesirable and expressed confidence in Bank of Japan Governor Kazuo Ueda’s ability to guide monetary policy successfully. Following the remarks, USD/JPY briefly slipped to daily lows near 158.65 before recovering and resuming its upward move.

Meanwhile, the US Dollar remains firmly supported as investors stay cautious over the Middle East conflict. Indirect negotiations between the United States and Iran remain stalled over disagreements surrounding Iran’s nuclear programme.

US President Donald Trump said on Monday that he had halted an immediate planned military attack on Iran after requests from Gulf leaders to allow peace negotiations to continue. However, Trump also warned that the US military remains prepared for a “full, large-scale assault” on Iran if an acceptable agreement is not reached.

At the same time, elevated Oil prices are reinforcing hawkish Fed expectations, with traders pricing in a higher chance of a rate hike by year-end, providing additional support to the Greenback.

Higher Oil prices remain an additional headwind for the Japanese Yen given Japan’s heavy dependence on imported energy, particularly from the Middle East. Meanwhile, stronger-than-expected Japanese Gross Domestic Product (GDP) data released earlier on Tuesday failed to provide meaningful support to the Yen, though it added to expectations that the Bank of Japan (BoJ) could continue gradually tightening monetary policy.