Yen Rebounds on Hawkish BOJ Bets

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.

The Japanese yen weakened toward 160 per dollar on Thursday, hovering at its lowest level since July 2024 when authorities last stepped in to support the currency, as the Bank of Japan kept its policy rate unchanged in a widely expected move. However, BOJ board member Hajime Takata dissented to the decision, proposing a 25 basis point rate hike to 1% for the second meeting in a row, citing upside risks to inflation. Oil prices surged again following fresh attacks on energy infrastructure in the Middle East as the Iran war continues. The yen also faced pressure from a strong dollar after the US Federal Reserve signaled it will hold rates until inflation shows signs of easing again. Meanwhile, Prime Minister Sanae Takaichi is set to meet US President Donald Trump later today to discuss potential economic and military cooperation, navigating a delicate diplomatic balancing act after Trump initially urged Japan to deploy warships to the Strait of Hormuz before retracting the request.

The Japanese yen strengthened to around 158.5 per dollar on Wednesday, rising for a third consecutive session on expectations that the Bank of Japan could signal a hawkish bias at its policy meeting this week, as a weak yen and elevated oil prices from the Iran war heightened inflation risks. Still, the central bank is widely expected to keep interest rates unchanged while assessing the impact of the Middle East conflict on the domestic economy. Meanwhile, Prime Minister Sanae Takaichi is set to meet US President Donald Trump this week, navigating a diplomatic balancing act after Trump initially urged Japan to deploy warships to the Strait of Hormuz before retracting the request. Japan’s heavy reliance on Middle East oil and US security support places Tokyo in a delicate position. Data also showed Japanese exports rose 4.2% in February year-on-year, exceeding expectations of 1.6% but slowing sharply from January’s 16.8% surge.