The US dollar fell sharply against the Japanese yen on Friday as easing geopolitical tensions in the Middle East and shifting expectations for Japanese monetary policy drove traders out of the greenback and into the yen.
By late New York trade, USD/JPY was down around 0.6%, hovering near 158.20 after briefly touching a session high of 159.53. In a later round of trading, the pair steadied near 159.14 after a volatile day, underscoring the market’s rapid reassessment of risk.
Geopolitical worries cool after Iran reassures on Hormuz
The main trigger for the dollar’s drop was Iran’s announcement that the Strait of Hormuz remains fully open to commercial traffic, easing fears of fresh disruptions in one of the world’s key energy chokepoints.
Foreign Minister Abbas Araghchi said all shipping would continue along a coordinated route overseen by Iran’s Ports and Maritime Organisation. The clarification helped remove concern about new bottlenecks in oil flows that had supported the dollar as a safe-haven asset in recent sessions.
With the risk of immediate supply disruption perceived to be lower, demand rotated away from defensive positions. The yen, which often benefits when risk sentiment normalizes as well as when it deteriorates, found modest support, while the dollar lost ground across the board.
In Washington, US President Donald Trump added to the de-escalation tone, saying the United States was nearing a deal with Tehran and suggesting the conflict “should be ending pretty soon.” Hopes for a longer ceasefire and more stable energy routes encouraged traders to move back into risk-sensitive assets.
Broad dollar weakness across major currencies
The pressure on the dollar was not limited to the yen. The US currency weakened against most major peers over the session:
- down 0.55% against the euro
- down 0.48% versus the British pound
- down 0.33% against the Canadian dollar
- down 0.75% versus the Australian dollar
- down 0.57% against the New Zealand dollar
- down 0.66% against the Swiss franc
The U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, fell 0.46% to 97.7622. Over the past month, the index has dropped 2.32%, pointing to a more persistent bearish tone toward the dollar as safe-haven demand fades and traders reassess global growth prospects.
Japan policy outlook complicates yen trajectory
While geopolitical easing supported the yen on Friday, the medium-term outlook for the Japanese currency remains closely tied to domestic monetary policy and yield differentials with the United States.
Bank of Japan Governor Kazuo Ueda has recently signaled greater caution, warning that Japan’s economy faces potential stagflation risks. He highlighted the twin pressures of rising energy costs and subdued growth, noting that higher oil prices create upside risks to inflation but downside risks to activity, complicating the central bank’s policy path.
Ueda, speaking in Washington, said the BoJ would monitor developments “to the last minute” before its next meeting, underscoring the difficulty of setting policy while Middle East tensions continue to influence commodity prices. He also acknowledged that Japan’s real interest rates remain low, even after earlier moves toward policy normalization.
Rate expectations pushed back
This more guarded tone has prompted analysts to push back expectations for the BoJ’s next move. Economists at Société Générale now see the next 25-basis-point rate increase coming around June or July, later than previously anticipated.
A delayed tightening cycle implies that the interest rate gap between the United States and Japan will remain wide for longer, a factor that typically supports the dollar versus the yen. However, Friday’s trading showed that this structural support can be overshadowed, at least temporarily, when geopolitical risk recedes and safe-haven flows unwind.
Market focus ahead
Traders are watching two main themes in the sessions ahead:
- further signals on a possible US–Iran understanding and the durability of any ceasefire, which could stabilize oil supply routes and trade flows
- fresh communication from the Bank of Japan and incoming data on growth and inflation, which may clarify how quickly the central bank is willing to adjust policy
The interplay between these geopolitical and monetary forces is likely to remain the key driver of USD/JPY, as markets weigh fading safe-haven demand for the dollar against an evolving, but still cautious, normalization path in Japan.
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