Yen Fluctuates After Three-Day Rally

The Japanese yen edged near the 160-per-dollar mark on Friday, weighed down by growing uncertainties over the Bank of Japan's policy outlook. The BOJ has signaled a possible rate hike this month but faces questions over whether it will provide clear guidance ahead of the April 28 meeting. Under Governor Kazuo Ueda, the bank has rarely held policy steady when markets were expecting a move. Traders are pricing in roughly a 70% chance of a rate increase, meaning a hold could unsettle global markets already jittery over Middle East tensions. Adding to the pressure, Finance Minister Satsuki Katayama flagged rising speculative activity in currency and crude oil markets, linking the volatility to US President Donald Trump’s renewed threats against Iranian infrastructure. She warned that the government is ready to take bold measures if market disruptions persist. Despite recent declines, the Japanese yen remains on track for a weekly gain.

The Japanese yen slipped to around 159.2 per dollar on Thursday, as mixed signals from US President Donald Trump over the potential de-escalation of the Middle East conflict supported the greenback. The US dollar gained after 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. However, he also emphasized that diplomatic talks are ongoing, leaving investors cautious about geopolitical risks and their impact on global markets. Japan, a major importer of Middle Eastern oil, has been hit sharply, as gasoline prices reached record highs in mid-March before easing slightly with 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.