06:24 AM EDT, 03/12/2026 (MT Newswires) -- The yen (JPY) has been one of the worst-performing G10 currencies since the Middle East conflict started, alongside the European currencies of the euro (EUR) and Swedish krona (SEK), said MUFG.

It has weakened by almost 2% against the US dollar (USD), lifting USD/JPY back up closer to the year-to-date highs from January at just below 159.50, wrote the bank in a note to clients. On that occasion, verbal intervention was stepped up significantly, including rate checks carried out by the New York Fed to prevent USD/JPY from rising back above the 160.00 level.

In contrast, the lack of verbal intervention from Japanese policymakers overnight Wednesday was notable, which indicates that less immediate concern, stated MUFG. Yen weakness is more fundamentally driven given the negative terms of trade shock for Japan from higher energy prices.

As a result, Japan may be more tolerant of allowing a weaker yen in the near-term, even though it will reinforce upside inflation risks alongside higher energy prices, added the bank. It potentially creates a higher bar for intervention that could require more concern over the pace of yen weakness and evidence of speculative selling.

Yen weakness is one reason why Bank of Japan watchers still expect the BoJ to hike rates again as soon at the April policy meeting, pointed out MUFG. The latest Bloomberg survey of Japan economists revealed that 37% now expect the BoJ to hike again in April, up from 17% from the previous survey two months ago. Back in January, 48% of participants expected the BoJ to wait until July to hike rates this year.

It compares to the current Japanese rate market pricing, which is attaching around a 60% probability of a hike in April. However, around half of the survey participants judged that the Iran conflict could make the BoJ more cautious over hiking rates again as soon as April by increasing downside risks to Japan's economy due to the hit from higher energy prices, according to the bank.

Yen weakness would likely extend further if the BoJ refrains from hiking rates in April, especially at a time when a hawkish repricing is underway in other government bond markets outside of Japan. The BoE and ECB are now expected to deliver one to two hikes this year in response to the energy price shock.

BoJ Governor Kazuo Ueda was speaking in parliament overnight Wednesday when he emphasized that foreign exchange is a key factor that affects prices, and is affecting prices more than before. The comments suggest yen weakness supports market expectations for an April hike, noted the bank.

Apart from intervention, the main risk to the weaker yen trend would be an unwind of yen-funded carry trades triggered by the energy price spike.