USD/JPY trades around 162.55 on Monday, rising 0.10% on the day. After an initial pullback for the US Dollar (USD), the pair regained momentum as geopolitical concerns reemerged, supporting the Greenback.
Market sentiment initially improved following statements that diplomacy between Iran and the United States could continue. Iranian Foreign Ministry spokesperson Esmaeil Baghaei noted intermediaries recently exchanged messages with Tehran, while US Secretary of State Marco Rubio said Washington remains open to negotiations, provided any agreement is respected by both sides.
However, sentiment reversed after Reuters reported that Yemen’s Iran-aligned Houthis announced an immediate naval blockade against Saudi Arabia. The news revived the geopolitical risk premium, allowing the USD to recover earlier losses as oil prices rebounded.
The US Dollar Index (DXY), tracking the Greenback against six major currencies, trades near 101.00 after rebounding from an intraday low around 100.65.
Expectations of a hawkish Federal Reserve continue to support the USD. Fed officials have reaffirmed their commitment to returning inflation to the 2% target, while rising oil prices maintain inflationary pressures, with markets pricing at least one additional rate hike this year.
On the Japanese side, investors remain cautious about potential FX intervention. Finance Minister Satsuki Katayama emphasized that the government stands ready to take “decisive action at any time” against excessive moves in the Japanese Yen (JPY). Expectations for the Bank of Japan (BoJ) lean toward maintaining its policy rate at 1% next week, signaling that further rate hikes may be required in the near term, which could support the JPY over the medium term.
