Japanese Yen Gains on Mideast Ceasefire

The Japanese yen appreciated past 158.5 per dollar on Wednesday, rebounding sharply from the critical 160 level touched earlier this week after the US, Iran and Israel agreed to a two-week ceasefire to allow negotiations for a potential agreement to end the war. President Donald Trump delayed planned strikes on Iranian civilian infrastructure for two weeks in what he called a “double-sided ceasefire,” while Iran agreed to reopen the Strait of Hormuz and Israel agreed to halt hostilities during the period. Meanwhile, Prime Minister Sanae Takaichi is seeking separate talks with US and Iranian leaders amid efforts to secure peace and Japan’s energy needs. The yen also found support from intervention fears, as Japanese authorities issued warnings against currency weakness, and from expectations of a near-term Bank of Japan rate hike.

The Japanese yen weakened toward 160 per dollar on Tuesday, reaching levels last seen in July 2024 when Tokyo last intervened in currency markets. The yen remained under pressure from a strong US dollar and elevated oil prices amid the ongoing Middle East conflict, with President Donald Trump setting a Tuesday deadline for Iran to strike a deal or face attacks on civilian infrastructure. Tehran has rejected a US ceasefire proposal, demanding an end to hostilities in the region, lifting of sanctions, and other conditions. Meanwhile, Prime Minister Sanae Takaichi said she plans talks with Iran’s leader and a separate call with Trump as part of efforts to pursue peace. On the monetary policy front, markets are pricing in a potential Bank of Japan rate hike this month amid rising inflationary pressures.

The Japanese yen traded around 159.5 per dollar on Monday, near its weakest levels since July 2024, as the intensifying Iran conflict and rising energy costs continued to weigh on the currency. On Sunday, President Donald Trump threatened strikes on Iran’s power plants and other civilian infrastructure starting Tuesday if the Strait of Hormuz is not reopened, though Tehran rejected the ultimatum and kept the waterway effectively closed. Market expectations point to more than a 70% chance of a Bank of Japan rate hike this month, with over two additional increases expected by year-end. The IMF also recommended on Friday that the BOJ continue gradually raising rates toward a neutral level to curb underlying inflation. Separately, traders are closely monitoring for potential currency intervention from Tokyo after recent strong warnings from officials.