Asian financial markets opened the week on a mixed note as geopolitical tensions escalated following US President Donald Trump's ultimatum to Iran regarding the reopening of the Strait of Hormuz. Trump threatened to destroy Iran's civilian infrastructure, including power plants and bridges, if Tehran does not comply with his deadline to reopen the strategic waterway by Tuesday, April 7, at 9:00 PM Eastern time [1][2][3][4][5]. In response, Iran demanded that transit through the Strait could resume only if part of the revenue is allocated to compensate for war-related damages, and warned of potential retaliation targeting other critical chokepoints such as the Bab el-Mandeb Strait in the Red Sea [1][3][4].
These developments have heightened concerns over disruptions to global trade routes and contributed to elevated crude oil prices, which reached a nearly four-week high on Monday [1][3][4]. The persistent geopolitical uncertainty has also fueled inflationary concerns, with investors now expecting that central banks, including the US Federal Reserve, may maintain or even raise interest rates to combat renewed inflation pressures. The upbeat US Nonfarm Payrolls (NFP) report released on Friday further reduced expectations for near-term Fed rate cuts, with market participants now pricing in a greater chance of a rate hike by year-end [1][3].
Market reactions have been notable across asset classes. Japan’s Nikkei 225 and South Korea’s Kospi indices were trading around 1% higher, while Indonesia's IDX Composite and Malaysia's KLCI faced downward pressure amid thin liquidity due to the Easter Monday holiday [1]. In currency markets, the Japanese Yen strengthened on safe-haven demand and expectations of further Bank of Japan (BoJ) tightening to counter rising inflation from higher energy costs [2][4][5]. The USD/JPY pair traded marginally down at around 159.55, with technical analysis indicating a bullish bias as long as it remains above the 20-day EMA at 158.90 [2]. The EUR/JPY hovered near 183.80, with the downside limited by the European Central Bank’s hawkish stance, while the AUD/JPY traded above 110.20, supported by expectations of further Reserve Bank of Australia rate hikes but capped by safe-haven flows into the Yen [4][5].
Gold (XAU/USD) remained under pressure, marking its second consecutive day of losses as prospects for higher global interest rates and a firmer US Dollar weighed on the non-yielding asset. The precious metal found support near $4,600, but technical indicators suggested a bearish setup, with traders awaiting further cues from the upcoming US ISM Services PMI release [3].
Forward-looking statements from the sources highlight that investors are closely monitoring the US ISM Services PMI data and central bank policy signals for further direction. The IMF has backed the BoJ’s gradual withdrawal of monetary stimulus, projecting Japanese inflation to converge toward the 2% target by 2027 [4]. Meanwhile, the ECB has reiterated its commitment to maintaining restrictive policy until inflation sustainably returns to target levels [4].
CONCLUSION
President Trump's ultimatum to Iran over the Strait of Hormuz has injected significant volatility into global markets, driving up oil prices and boosting safe-haven demand for the Japanese Yen. The heightened geopolitical risk, combined with strong US economic data, has shifted expectations toward tighter monetary policy, weighing on gold and supporting the US Dollar. Investors remain cautious, awaiting further economic data and policy signals amid ongoing uncertainty.