USD/JPY traded with a slightly softer tone on Monday, as the Japanese Yen found modest support amid a broadly weaker US Dollar. This movement was influenced by fresh geopolitical developments, including reports of potential ceasefire talks between the United States and Iran, which have contributed to optimism over a possible de-escalation in the ongoing conflict. At the time of writing, USD/JPY was little changed at around 159.45, while the US Dollar Index (DXY) traded at approximately 99.84, down nearly 0.34% on the day [1].
Reports indicate that the US and Iran, along with regional mediators, are discussing a possible 45-day ceasefire to help end the war, according to Axios. Reuters further reported that both Washington and Tehran have received a proposal for a two-step deal to end hostilities, which could take effect as early as Monday and may include reopening the Strait of Hormuz. Iran’s Foreign Ministry spokesperson, Esmaeil Baghaei, stated that Tehran has formulated its diplomatic response and will announce it in due time [1].
The uncertain situation continues to keep Oil prices, inflation risks, and growth concerns at the forefront, impacting monetary policy outlooks across major economies. In Japan, rising Oil prices may reinforce inflation and keep the Bank of Japan (BoJ) on a gradual tightening path, but as a net energy importer, higher energy costs could also weigh on economic growth and limit further rate hikes. Markets are currently pricing in around a 70% chance of a rate hike at the BoJ's April meeting, with expectations for two hikes by year-end. Intervention risks remain elevated as USD/JPY trades close to the 160.00 level, with Japanese authorities signaling readiness to act against excessive currency volatility [1].
In the United States, market expectations have shifted sharply since the start of the US-Iran war, with investors now expecting the Federal Reserve to keep interest rates on hold through 2026, a notable change from earlier expectations of at least two rate cuts this year. On the data front, the ISM Services Purchasing Managers Index (PMI) for March came in at 54, down from 56.1 in February and below expectations of 55, further weighing on the US Dollar [1].
CONCLUSION
The USD/JPY pair is experiencing modest downward pressure as ceasefire talks between the US and Iran and softer US economic data weigh on the US Dollar. Market participants are closely watching geopolitical developments and central bank policy signals, with intervention risks and rate hike expectations shaping the outlook. The situation remains fluid, and further clarity on diplomatic progress could significantly impact currency and broader financial markets.