The Japanese yen slipped in early Asian trading on Monday, with the dollar–yen pair trading around 159.10, as renewed tensions between the United States and Iran pushed demand toward the US currency.
Geopolitical tensions lift the dollar
The move followed fresh signs of strain in the Middle East, where hostilities have now stretched beyond seven weeks.
Tehran confirmed it would not send negotiators to peace talks after Washington said discussions were expected to resume in Pakistan. Hours earlier, President Trump announced that the US Navy had seized an Iranian-flagged cargo vessel near the Strait of Hormuz.
In response, Iranian authorities warned that foreign ships entering the area would be treated as violating a ceasefire. Several vessels changed course after the warning, despite earlier assurances from Tehran that the strait remained open to navigation.
The renewed friction supported the dollar, which tends to benefit in periods of geopolitical stress as global funds seek liquid, perceived safe-haven assets. Analysts said this shift could keep pressure on the yen in the near term if safe-haven flows continue to favor the US currency over Japan’s.
Tokyo signals readiness to respond
In Tokyo, Finance Minister Katayama said she had been in contact with US Treasury Secretary Bessent regarding exchange market conditions. She reiterated that Japan remained prepared to take “bold measures” to counter what authorities view as excessive currency moves, if needed.
Despite the stronger language, official figures show no direct market intervention between February 26 and March 27 this year, suggesting authorities are relying on verbal signals for now.
Policy divergence underpins yen weakness
Beyond geopolitical headlines, the yen’s broader trend remains tied to interest rate differentials and global risk appetite.
The long-running divergence between central bank policies has weighed on the Japanese currency. While recent adjustments by the Bank of Japan have narrowed the gap slightly, Japan’s policy rate at 0.75% remains far below US levels.
The US Federal Reserve is widely expected to keep its benchmark rate unchanged in the 3.5–3.75% range at its April 28–29 meeting. Market-based pricing implies a 97.7% probability of no move this month, as policymakers assess the economic impact of higher energy costs.
By contrast, Bank of Japan Governor Ueda has signaled caution. He noted that rising oil prices complicate the policy outlook by threatening both inflation and growth, muting speculation of an imminent rate hike from current levels.
Dollar at multi-year highs versus yen, broader strength intact
The safe-haven bid and policy divergence have helped push the dollar–yen pair toward multi-year highs. The exchange rate tested 160.41 on March 29, 2026, a level that historically draws closer scrutiny from Japanese authorities.
Dollar strength has not been confined to the yen. The US Dollar Index, which tracks the currency against a basket of major peers, climbed above the 98.60 resistance mark in early March as Middle East tensions intensified.
This pattern reflects a familiar “flight to safety” dynamic: during periods of pronounced global instability, global capital tends to gravitate toward the most liquid and trusted currency, often amplifying dollar gains across markets.
Shock waves across assets in February selloff
The market impact of the February 28 escalation in the conflict underlined the dominance of dollar liquidity in stressed conditions.
On that day, a broad liquidation swept through risk assets and traditional hedges alike. The digital asset market shed more than $128 billion within hours, while gold — typically viewed as a defensive holding — slumped by around 14% in a single session as participants sold their most liquid positions to meet margin calls.
The episode highlighted how, in acute stress, traders often prioritize immediate cash and dollar funding needs over the usual characteristics of their holdings. Assets that are normally considered diversifiers or uncorrelated to mainstream markets can be sold aggressively when cash demands spike, producing price moves that break with typical patterns.
Outlook for the yen
For now, the yen’s trajectory remains tied to three main forces: geopolitical risk, policy divergence, and market sentiment toward risk.
Continued tensions in the Middle East may keep the dollar supported, especially if safe-haven flows remain concentrated in US assets rather than in the yen. At the same time, as long as the rate gap between the Fed and the Bank of Japan stays wide, rallies in the yen are likely to face resistance.
Market participants will be watching upcoming Fed communications, any shift in tone from the Bank of Japan, and further comments from Finance Minister Katayama for signs of whether Japan is prepared to move from verbal warnings toward concrete action in the currency market.
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