The Japanese Yen (JPY) is under renewed pressure as ongoing energy shocks, stemming from Middle East tensions, weigh on its outlook, according to MUFG’s Senior Currency Analyst Lloyd Chan [1]. The recent geopolitical standoff between the US and Iran has led to Brent crude oil prices closing above $100 per barrel for the first time in the past seven trading days, following the continued blockade of Iranian ports and Iran’s rejection of peace talks [1]. Although President Trump has unilaterally extended the ceasefire indefinitely, the lack of a quick resolution suggests a prolonged disruption to energy flows through the Strait of Hormuz, raising the risk of more persistent, oil-driven inflation in Japan [1].
Market participants have responded by maintaining net long positions on the US dollar, while expectations for a Bank of Japan (BoJ) rate hike have been pushed back to June at the earliest, further pressuring the yen in the near term [1]. However, the risk of BoJ intervention is rising, as deeper yen depreciation could amplify imported, oil-driven inflation, potentially limiting the extent of further downside in the currency [1].
Despite the ongoing energy shock, the extension of the ceasefire indicates limited appetite for further escalation, which has offered some marginal support to broader risk sentiment [1]. Nevertheless, the yen remains vulnerable as long as energy market disruptions persist and monetary policy tightening is delayed [1].
CONCLUSION
The Japanese Yen is likely to face continued weakness due to persistent energy shocks and delayed expectations for a BoJ rate hike. However, the risk of central bank intervention may cap further depreciation, especially if inflation pressures intensify. Market sentiment remains cautious, with some support from the extended ceasefire, but the outlook for the yen remains challenged in the near term.