Yen Weakens as Iran War Weighs

The Japanese yen depreciated past 158 per dollar on Wednesday, remaining under pressure as heightened uncertainty over the Middle East conflict continued to support the dollar. The Trump administration sent mixed signals on the Iran war, with President Donald Trump saying the conflict could end soon, while senior officials indicated that military operations were intensifying and that diplomatic talks remained unlikely. Iran’s Revolutionary Guards dismissed Trump’s claims, warning that the blockade would continue until US and Israeli attacks cease. Meanwhile, oil prices declined further after reports that the IEA proposed the largest release of oil reserves in its history to help calm markets. Japan is highly vulnerable to oil shocks given its reliance on energy imports, but the country stands ready to tap its emergency reserves to offset supply risks. Meanwhile, data showed that producer prices in Japan rose 2% in February, marking the softest increase in nearly two years.

The Japanese yen strengthened to around 157.6 per dollar on Tuesday after weakening to nearly 159 in the previous session, as falling energy prices eased pressure on the country’s oil-importing economy. The yen also gained from the dollar’s retreat, with hopes for a swift end to the Iran war reducing safe-haven demand for the greenback. Trump said the US military operation in Iran is nearing its conclusion and running well ahead of the initial four- to five-week estimated timeframe. He also signaled plans to waive oil-related sanctions and have the US Navy escort tankers through the Strait of Hormuz to help keep oil prices in check. In Japan, fourth-quarter GDP growth was revised upward to 0.3% from an initial 0.1%, supported by strong domestic demand. Earlier data also showed real wages rose for the first time in 13 months, reinforcing the Bank of Japan’s case to continue normalizing monetary policy and providing the government flexibility to pursue its key policy objectives.

The Japanese yen depreciated past 158.5 per dollar on Monday, hitting six-week lows as oil topped $100 a barrel amid concerns that a prolonged Middle East conflict could disrupt global energy supplies, weighing on oil-dependent economies. The US-Israeli war with Iran entered its second week with no resolution in sight, while major oil producers in the Middle East have been curbing production as shipments through the Strait of Hormuz remain halted. Japan relies on the Middle East for around 95% of its oil supplies with about 70% coming via the Strait of Hormuz, making the country particularly vulnerable to oil shocks. The government is considering tapping part of its national oil reserves as the Iran crisis continues. The yen was further pressured by a strengthening dollar, which benefited from its safe-haven appeal and revised expectations for Federal Reserve policy.