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Yen weakens as Middle East tensions boost the US dollar

USD/JPY was around 162.55, up 0.10% on the day, after a Reuters report on a Houthi naval blockade against Saudi Arabia lifted risk and oil prices.

Reported · Written up by our desk · Major Pairs

FXStreet reports that USD/JPY traded around 162.55 on Monday, up 0.10% as renewed Middle East tensions helped the US dollar regain momentum after an earlier pullback.

The shift followed commentary that diplomacy between Iran and the United States could still be possible, which initially weighed on the dollar. Sentiment turned when Reuters reported that Yemen's Iran-aligned Houthis announced an immediate naval blockade against Saudi Arabia, reviving a geopolitical risk premium and supporting the Greenback as oil prices rebounded.

FXStreet also pointed to ongoing support for the dollar from expectations for a hawkish Federal Reserve, with markets pricing in at least one additional rate hike this year. On the yen side, investors remain cautious about the risk of Japanese authorities intervening, after Finance Minister Satsuki Katayama reiterated the government stands ready to take decisive action against excessive yen moves.

The report added that expectations around the Bank of Japan remain tilted toward further normalization, with a Kyodo report saying the policy rate is expected to be left unchanged at 1% at next week's meeting while signaling additional hikes may be needed soon. BBH argued stronger inflation in Japan and a policy rate still near the lower end of the BoJ's neutral range could keep markets pricing in further tightening.

Latest closeUSD/JPY 162.33 ▲0.2%

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