Japanese Yen Weakens as Inflation Eases

The Japanese yen weakened past 158.5 per dollar on Tuesday, trimming gains from the previous session as oil prices recovered some of Monday’s losses, keeping pressure on Japan’s oil-importing economy. The moves followed Iran’s denial of any talks to end the conflict, pushing back against President Donald Trump’s claims. On Monday, the yen had jumped 0.5% after Trump postponed planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran over the past two days. Domestically, data showed core inflation rose 1.6% in February, the smallest increase since March 2022 amid government efforts to ease living costs, though rising energy prices from the Iran war could push inflation higher in the coming months. The soft inflation reading offered little impetus to change monetary policy after the Bank of Japan held rates steady last week.

The Japanese yen weakened toward 159.5 per dollar on Monday, nearing the key 160 level that has previously triggered market intervention. Top currency chief Atsushi Mimura said the government is prepared to take all necessary steps to respond to foreign exchange moves. Mimura also highlighted the impact of the prolonged Middle East conflict and rising oil prices on the yen, noting that currency fluctuations affect people’s daily lives. The yen failed to hold gains from last week, when the Bank of Japan kept its policy rate steady but signaled a bias toward tighter monetary policy to counter inflationary pressures from surging oil prices. Board member Hajime Takata dissented, recommending a 25 basis point hike to 1% for a second consecutive meeting. BOJ Governor Kazuo Ueda added that a rate increase remains possible if the economic slowdown from the Iran conflict proves temporary.

The Japanese yen strengthened to around 158 per dollar on Friday after nearly hitting the 160 level earlier this week, supported by the Bank of Japan’s bias for tighter monetary policy to counter inflationary pressures from surging oil prices linked to the Middle East conflict. On Thursday, the BOJ held its policy rate at 0.75% as expected, though board member Hajime Takata dissented, recommending a 25 basis point hike to 1% for a second consecutive meeting amid rising inflation risks. BOJ Governor Kazuo Ueda also indicated that a rate increase remains possible if the economic slowdown from the Iran conflict proves temporary and core inflation persists. The yen further benefited from easing oil prices after US President Donald Trump ruled out deploying ground troops to the Middle East, and Israeli Prime Minister Benjamin Netanyahu pledged to refrain from additional strikes on Iranian energy infrastructure.