The Japanese yen weakened against a basket of major and minor currencies in Asian trading on Monday, resuming its decline against the US dollar after a two-day rebound, as renewed military tensions between the United States and Iran around the Strait of Hormuz boosted demand for the US dollar as a preferred safe-haven asset.

At the same time, rising global oil prices have intensified concerns over inflationary pressures in Japan, increasing expectations that the Bank of Japan may be forced to raise interest rates in the near term, with investors awaiting further economic data from the world's fourth-largest economy.

The Price

The US dollar rose around 0.3% against the yen to 162.17, from Monday's opening level of 161.71, after touching an intraday low of 161.62.

The yen ended Friday's session up 0.45% against the dollar, posting its second consecutive daily gain and its strongest daily advance in about 10 days after the Japanese government encouraged pension funds to increase investments in domestic assets.

The yen lost 0.2% against the dollar last week, marking its third weekly decline in a month, as concerns over the interest rate gap between Japan and the United States continued to weigh on the currency.

US dollar

The US Dollar Index rose 0.25% on Monday, extending its gains for a second consecutive session as the greenback strengthened against a basket of major global currencies.

Demand for the dollar as a safe-haven asset picked up again as military tensions between the United States and Iran escalated over control of the Strait of Hormuz, raising fears that the framework agreement could collapse and direct confrontation between the two countries could resume.

Global oil prices

Oil prices surged more than 4% at the start of Monday's trading, putting crude on track to reach its highest levels in several weeks after Iran announced the closure of the Strait of Hormuz, fueling concerns over potential supply disruptions from the Gulf region.

Latest developments in the Iran conflict

The US Central Command (CENTCOM) launched a third wave of intensive airstrikes along Iran's coastline.

The latest US strikes followed attacks by Iran's Islamic Revolutionary Guard Corps Navy on commercial vessels in the Strait of Hormuz.

Iran expanded its military operations against Gulf states following the US strikes and announced the closure of the Strait of Hormuz.

President Donald Trump said the Strait of Hormuz is "open and will remain open" through the use of military force, while the US Treasury revoked temporary licenses allowing Iranian oil sales.

Iran's Foreign Ministry accused Washington of undermining diplomatic efforts and violating the terms of the framework agreement.

Iranian Parliament Speaker Mohammad Bagher Ghalibaf declared that the era of "unequal agreements" is over and warned that Washington would "pay the price."

Japanese interest rates

As global oil prices climbed, markets increased the implied probability of a 25-basis-point Bank of Japan rate hike at an upcoming meeting to above 30%.

The probability of a 25-basis-point rate hike at the October meeting has risen to above 85%.

Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess those expectations.