The Japanese yen weakened in Asian trading on Tuesday against a basket of major and secondary currencies, extending its losses for a second consecutive session against the US dollar, as investors continued favoring the US currency as the top safe-haven asset amid escalating geopolitical tensions between the United States and Iran, especially after Tehran rejected the US peace proposal.

The summary of opinions released by the Bank of Japan earlier today showed a clear hawkish tilt and growing preparation for an early interest rate hike, driven by rising inflation risks stemming from the Middle East crisis and the war involving Iran.

Price Overview

USD/JPY today: The US dollar rose more than 0.3% against the Japanese yen to 157.65, from todays opening level at 157.14, while the session low was recorded at 157.08.

The yen ended Monday down 0.3% against the dollar, as renewed profit-taking and corrective selling emerged after the currency touched a three-month high at 155.03.

Beyond profit-taking activity, the yen weakened due to fears of a renewed war between the United States and Iran.

US Dollar

The US Dollar Index rose 0.25% on Tuesday, extending gains for a second straight session, reflecting continued strength in the US currency against a basket of global currencies.

The rise comes as investors continue buying the US dollar as a safe haven amid growing concerns over renewed military confrontation between the United States and Iran, especially after Tehran rejected the American peace proposal.

US-Iran Negotiations

US President Donald Trump said on Monday that the ceasefire with Iran was close to collapse, after Tehrans response to a US proposal to end the war made it clear that both sides remain far apart on several key issues.

Trump also confirmed that he is seriously considering relaunching Project Freedom, while announcing plans for an upcoming meeting with a large group of generals and military commanders to discuss available options and strategies regarding the Iranian الملف.

Meanwhile, Iranian Parliament Speaker Mohammad Bagher Ghalibaf said there is no alternative to accepting Irans proposal, stressing that Tehran is prepared to respond immediately to any military action.

Global Oil Prices

Oil prices rose nearly 1% on Tuesday, maintaining gains for a second consecutive day amid fears that the Strait of Hormuz could remain closed and continue disrupting global oil supplies.

Higher global oil prices are undoubtedly reviving fears of accelerating inflation, which could push central banks worldwide toward raising interest rates in the near term, marking a sharp shift from pre-war expectations of prolonged rate cuts or policy stability.

Bank of Japan Summary of Opinions

The Bank of Japans Summary of Opinions released today showed a clear hawkish shift and growing readiness for an early rate hike, driven by escalating inflation risks tied to the Middle East crisis and the war involving Iran.

Although the central bank kept interest rates unchanged at 0.75%, internal divisions and the emergence of calls for an immediate hike to 1.0% clearly indicate that Japans ultra-loose monetary policy era may be nearing its end.

This shift comes as the BOJ was forced to raise its inflation forecast to 2.8% while lowering economic growth projections, pushing yields on 10-year Japanese government bonds to their highest levels in 29 years.

These developments reflect the depth of the challenge facing the central bank as it attempts to balance imported inflation pressures with the need to protect the economy from recession, leaving global markets closely watching for the anticipated rate hike decision.

Japanese Interest Rates

As oil prices continue rising, markets increased pricing for a quarter-point interest rate hike by the Bank of Japan at the June meeting from 55% to 60%.

Investors are now awaiting more Japanese data on inflation, unemployment, and wages in order to reassess those expectations.