Yen Weakens Despite Hawkish BOJ Signals

The Japanese yen slid to around 159.5 per dollar on Thursday, as the greenback strengthened amid waning expectations of a swift conclusion to the Middle East conflict. The US dollar rose as investors pared back expectations for Federal Reserve rate cuts, amid concerns that a surge in oil prices driven by the conflict could stoke rising inflation. During his speech, Trump said the war in Iran was “very close” to completion and likely to meet its objectives in the coming weeks, while warning that military operations could intensify. Japan, a major importer of Middle Eastern oil, has also been hit sharply, with gasoline prices reaching record highs in mid-March before easing slightly due to government subsidies. Meanwhile, new Bank of Japan board member Toichiro Asada signaled a cautious, data-driven approach at his first briefing. Asada joins the nine-member board ahead of the April 27–28 policy meeting, where markets currently see about a 71% chance of a rate hike.

The Japanese yen strengthened to around 158.5 per dollar on Wednesday, marking its third consecutive session of gains as market optimism grew over a potential de-escalation of tensions in the Middle East. Investors were encouraged by President Donald Trump’s remarks that US forces could conclude operations in Iran within two to three weeks. Meanwhile, Iranian President Masoud Pezeshkian said Tehran was willing to end hostilities if guarantees were provided to prevent the conflict from reigniting. Domestically, Japan’s economic indicators underscored resilience despite the geopolitical uncertainty. The Bank of Japan’s sentiment index for large manufacturers rose to 17 in the first quarter of 2026, reaching its highest level since the fourth quarter of 2021, suggesting that business confidence remains robust. Meanwhile, the manufacturing PMI was revised slightly upward to 51.6 in March from a preliminary estimate of 51.4, though it remained below February’s near four-year peak of 53.

The Japanese yen stabilized around 159.6 per dollar on Tuesday, holding gains from the previous session, supported by repeated verbal warnings from Tokyo and growing market positioning for a possible intervention. On Monday, top currency official Atsushi Mimura said the government would take decisive action if needed, echoing earlier remarks from Finance Minister Satsuki Katayama. Their comments came as the yen weakened past the critical 160 per dollar level that had previously prompted Tokyo to intervene in currency markets in July 2024. The currency came under pressure from surging oil prices linked to the Middle East conflict given Japan’s reliance on oil imports from the region. Despite recent support, the yen is still on track to lose more than 2% this month as the dollar stood out among safe-haven currencies during this crisis.