Japanese Yen strengthens to near 157.50 on Middle East geopolitical risks

USD/JPY weakens to around 157.55 in Wednesday’s early Asian session.
Trump said new strikes target Iranian leadership.
The US February ISM Services PMI will be the highlight on Wednesday.

Lallalit Srijandorn FXStreet

The USD/JPY pair loses ground to near 157.55 during the Asian trading hours on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) as escalating US-Israel-Iran tensions boost a safe-haven demand. The US February ISM Services Purchasing Managers Index (PMI) will be in the spotlight later on Wednesday.

US President Donald Trump said most of Iran’s military installations have been “knocked out” and that new strikes targeted Iranian leadership, per CNBC. Israel also struck a compound belonging to a group responsible for electing Iran’s next supreme leader. Persistent geopolitical risks and fears of a prolonged war could provide some support to the JPY in the near term.

Furthermore, hawkish remarks from Japanese officials might contribute to the JPY’s upside. BoJ Deputy Governor Ryozo Himino said on Monday that while the current policy remains "somewhat accommodative," the central bank should moderately hike rates as long as its economic and price projections are met.

Traders brace for the release of the US ISM Services PMI later in the day. Economists expect the figure to edge down slightly to 53.5 in February from January's reading of 53.8. In case of stronger-than-expected outcomes, this could underpin the Greenback against the JPY.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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