Yen Stays Near Intervention Zone as Iran Conflict Supports U.S. Dollar

The Japanese yen remained close to its weakest level since May against the U.S. dollar on Wednesday, keeping traders alert for possible intervention by Japanese authorities. The USD/JPY pair traded near 159.20, not far from the critical 160 mark that investors believe could trigger another round of currency support measures from Japan.

Market sentiment stayed cautious as the ongoing Iran conflict boosted demand for the safe-haven U.S. dollar. Concerns over disruptions to the Strait of Hormuz, a key global oil shipping route, continued to weigh on risk appetite. U.S. Secretary of State Marco Rubio stated that negotiations to end the conflict may still take several days, adding to uncertainty in global financial markets.

Despite the pressure on the yen, Bank of Japan Governor Kazuo Ueda delivered a relatively hawkish tone, warning that rising oil prices could create lasting inflation risks amid stronger wage growth and elevated inflation expectations. Investors are now pricing in nearly a 70% chance of a Bank of Japan interest rate hike at the June policy meeting.

Analysts noted that Japan’s dependence on imported energy is limiting the yen’s recovery, even as expectations for tighter monetary policy increase. Upcoming Tokyo consumer inflation data on Friday will likely play a key role in shaping the BOJ’s next move.

Meanwhile, the U.S. dollar index held steady near 99.087 after gaining slightly in the previous session. The euro traded flat at $1.1638, while the Australian dollar climbed 0.15% to $0.7177 ahead of important inflation data that could influence the Reserve Bank of Australia’s interest rate outlook.

The New Zealand dollar also recovered modestly to $0.5846 as investors awaited the Reserve Bank of New Zealand’s policy decision later in the day.