Japanese Yen gains as oil slide eases stagflation concerns in Japan

Japanese Yen strengthens as traders price in easing stagflation concerns in Japan amid lower oil prices.
BoJ’s Ueda urged vigilance on Iran conflict risks, warning that higher oil prices may hurt Japan’s growth.
US Treasury Secretary Scott Bessent urged patience on rate cuts, though confident recent price gains won’t embed in inflation expectations.

Akhtar Faruqui FXStreet

The Japanese Yen (JPY) gains against the US Dollar (USD) as easing oil prices fade stagflation concerns in Japan. However, the recent surge in energy costs linked to Middle East concerns, fueled expectations of a near-term Bank of Japan (BoJ) rate hike. The pair is trading around 159.00 during the Asian hours on Tuesday.

The Bank of Japan (BoJ) Governor Kazuo Ueda stressed on Monday the need for vigilance over the economic impact of the Iran conflict, warning that rising oil prices could weigh on Japan’s growth outlook.

The USD/JPY pair loses ground as the safe-haven demand for the US Dollar (USD) faded after reports that the United States (US) and Iran may hold further talks to secure a longer-term ceasefire before the current two-week truce ends.

Moreover, the Greenback also faces challenges as the recent ease in oil prices fades the inflation pressure and hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. Fed Governor Stephen Miran said the Iran-related energy shock has not yet affected long-term inflation expectations, adding he expects price pressures to return to the central bank’s target within a year.

US Treasury Secretary Scott Bessent said in a Semafor interview on Tuesday that the US should “wait and see” before cutting interest rates, adding he is confident recent price increases will not become embedded in inflation expectations.

US President Donald Trump said that Iran had made contact and is now looking to resume negotiations. Vice President JD Vance also indicated ongoing diplomatic efforts and a possible path toward US-Iran conflict de-escalation. Vance stated that recent discussions over the weekend were constructive, providing US officials with deeper insight into Iran’s negotiating stance.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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