The Japanese Yen (JPY) continued its decline against the US Dollar (USD), with the USD/JPY pair trading above the 162.00 mark and up 0.30% for the day, remaining close to a four-decade high reached earlier this month [1][2]. This weakness is attributed to the wide rate differential between Japan and other major economies, which keeps the carry trade active, and heightened concerns over Japan's reliance on Middle Eastern crude oil amid escalating tensions between the US and Iran. Over 90% of Japan's crude oil is sourced from the Middle East, making the Yen vulnerable to geopolitical risks, particularly after recent US strikes on Iran and Iran's missile attacks on US military bases in the Gulf, as well as the closure of the Strait of Hormuz by Iran's Islamic Revolutionary Guard Corps (IRGC) [1]. These developments have triggered a fresh rise in crude oil prices, reviving concerns about energy-driven inflation and reinforcing market expectations that the US Federal Reserve may hike interest rates at least once in 2026 [1].
ING's Chris Turner notes that higher energy prices are pressuring Asian currencies, including the JPY, and that Japanese authorities may follow a similar intervention pattern to last year, potentially acting ahead of the Marine Day holiday next Monday. However, Turner cautions that intervention alone cannot reverse the current bull trend in USD/JPY unless energy prices fall and the Fed becomes less hawkish, both of which seem unlikely in the near term [2]. The timing of FX intervention in late April/early May this year mirrored previous years, and authorities may intervene again this Thursday or Friday ahead of the public holiday [2].
OCBC strategists Sim Moh Siong and Christopher Wong expect the USD to appreciate by around 2–3% by end-2026, supported against low-yielding currencies such as the EUR and CHF. They highlight that a stronger USD move above 5% is a tail risk tied to oil prices rising above USD100/bbl. The strategists also note that the JPY could see near-term support from policy efforts to encourage greater domestic investment by Japanese pension funds, though this has not yet impressed JPY bulls or capped USD/JPY upside [1][3]. Upcoming US inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), as well as Fed Chair Warsh's congressional testimony, are seen as potential catalysts for further USD strength [1][3].
Japanese authorities remain vigilant regarding intervention risks, but the fundamental backdrop—higher energy prices, geopolitical tensions, and a hawkish Fed—continues to favor USD strength and JPY weakness. The market is closely watching for intervention ahead of the Marine Day holiday and for key US economic data releases that could influence the USD/JPY trajectory [1][2][3].
CONCLUSION
The Japanese Yen remains under pressure as USD/JPY trades above 162, driven by higher energy prices and geopolitical risks. While intervention risks are rising, analysts suggest that only a shift in energy prices or Fed policy could reverse the current trend. Upcoming US inflation data and potential intervention ahead of the Marine Day holiday are key events to watch for further market direction.