Yen Holds Steady as Markets Watch US-Iran Talks

The Japanese yen steadied around 159 per dollar on Friday, drawing some support as a two-week US-Iran ceasefire triggered a sharp decline in oil prices and eased stagflation concerns. Investors are now focused on diplomatic talks in Islamabad this weekend, where Vice President JD Vance will lead a US delegation in meetings with Iranian officials. However, sentiment remained cautious amid Israeli strikes on Lebanon and ongoing disruptions in the Strait of Hormuz that risk undermining the fragile truce. The yen remains down about 2% since the start of the conflict, reflecting concerns that surging energy costs from the Iran war could fuel inflation while weighing on Japan’s growth outlook. Markets are now watching for signals from Bank of Japan Governor Kazuo Ueda ahead of the April 28 policy decision, following his guidance-style communication approach seen ahead of the last rate hike in December.

The Japanese yen slipped toward 159 per dollar on Thursday, giving back some of the previous session’s gains as the dollar and oil recovered amid ongoing uncertainty over the US-Iran ceasefire. A senior Iranian official stated that elements of the ceasefire proposal had already been breached following fresh Israeli strikes on Lebanon, while Tehran continued to largely block the Strait of Hormuz. On Wednesday, the yen had rallied as much as 1% after the ceasefire announcement, reflecting Japan’s sensitivity to Middle East oil supply shocks. Meanwhile, a former Bank of Japan official suggested the central bank is likely to raise its policy rate this month to avoid falling behind in controlling inflation. Markets are now closely watching for any signals from BOJ Governor Kazuo Ueda ahead of the April 28 policy announcement, similar to the guidance he provided in December before the last rate increase.

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.