Yen Finds Support as Dollar Retreats

The Japanese yen strengthened past 157 per dollar on Thursday, extending gains from the previous session as the dollar pulled back on hopes for an end to hostilities in the Middle East and easing inflationary concerns. However, traders remain on alert for further escalation as the US-Israeli war on Iran has now entered its sixth day, with the US sinking an Iranian warship off the coast of Sri Lanka. Inflation worries also eased as the Trump administration moved to reassure markets over commercial activity in the Gulf. Domestically, Bank of Japan Governor Kazuo Ueda cautioned that the Middle East conflict could materially impact Japan’s economy, signaling a likely prolonged hold on interest rates. Meanwhile, Finance Minister Satsuki Katayama said currency market intervention remains an option to support the yen, noting that authorities are monitoring the decline “with a strong sense of urgency” and are coordinating closely with the US.

The Japanese yen held its recent decline to around 157.6 per dollar on Wednesday, pressured by the greenback as concerns that a prolonged Middle East conflict could keep energy prices elevated stoked inflation worries. Markets scaled back expectations for Federal Reserve rate cuts, pushing back bets on the next reduction from July to September. The dollar also emerged as the clear leader among safe-haven currencies as the US-Israeli war on Iran entered its fifth day. Meanwhile, Japanese Finance Minister Satsuki Katayama said currency market intervention remains an option to support the yen, noting authorities are monitoring the decline “with a strong sense of urgency” and are closely coordinating with the US. Elsewhere, Bank of Japan Governor Kazuo Ueda warned that the Middle East conflict could significantly affect Japan’s economy, signaling the central bank is likely to keep rates steady for an extended period.

The Japanese yen traded around 157.4 per dollar on Tuesday, following a nearly 1% drop in the previous session, pressured by rising energy costs amid the escalating Middle East conflict given Japan’s heavy reliance on energy imports. Finance Minister Satsuki Katayama noted that currency market intervention remains an option to support the yen, saying authorities are monitoring the decline “with a strong sense of urgency” and are in close coordination with the US. Japan faces the dual challenge of sluggish growth and persistent inflation, complicating the Bank of Japan’s policy path, though Deputy Governor Ryozo Himino affirmed that the central bank will continue raising interest rates without specifying a timeline. Investors are now awaiting remarks from Governor Kazuo Ueda later in the day for further guidance. Last week, the government nominated two reflationist academics to the BOJ policy board, while PM Sanae Takaichi reportedly expressed concerns over additional rate hikes.