Yen Volatile Amid Intervention Risk

The Japanese yen rose toward 157.5 per dollar on Wednesday, snapping a three-day losing streak as both the US dollar and oil prices declined on growing signs of de-escalation in the Middle East. Washington reaffirmed the ceasefire, confirmed that offensive operations against Iran have ended, and temporarily paused efforts to assist stranded vessels leaving the Strait of Hormuz to allow time for potential renewed talks with Tehran. The yen remains particularly sensitive to Middle East developments due to Japan’s heavy dependence on oil imports from the Gulf. At the same time, investors stayed alert to the possibility of official support for the currency following suspected intervention by Japanese authorities last week. Estimates suggest Tokyo may have deployed around $35 billion to stabilize the yen, although officials have not confirmed any intervention. Still, the yen’s recent pullback suggests a lack of further follow-through action from policymakers.

The Japanese yen weakened past 157 per dollar on Tuesday, paring recent gains as the dollar rebounded on safe-haven demand amid renewed hostilities in the Middle East that threatened to unravel the four-week ceasefire between the US and Iran. Escalating tensions around the Strait of Hormuz, which pushed energy prices higher, also bolstered expectations that the US Federal Reserve may need to raise interest rates to contain inflation, lending additional support to the dollar. Meanwhile, traders remained cautious following suspected intervention by Japanese authorities last week, which triggered a sharp rally in the yen. Reports suggested Tokyo may have spent roughly $35 billion to support its currency, though officials have not confirmed any action. Market participants continue to weigh the risk of further intervention, with Tokyo often taking advantage of thin holiday liquidity and typically conducting multiple rounds of yen buying when stepping in.

The Japanese yen swung sharply before stabilizing near 157 per dollar in choppy trading on Monday, as markets stayed alert to the risk of government intervention to support the currency. Last Thursday, the yen surged as much as 3% to 155.5 per dollar after weakening past the key 160 level, though Japanese officials stopped short of confirming any action. Traders continue to assess the likelihood of further intervention, with Tokyo often taking advantage of thin holiday liquidity and typically executing multiple rounds of yen purchases when stepping in. Markets have also weighed the possibility of US coordination with Japan to bolster the currency. These movements come against the backdrop of recent policy decisions by both the Bank of Japan and the Federal Reserve, which held interest rates steady, maintaining a wide US–Japan rate differential that continues to support the dollar and pressure the yen.