The Japanese yen fell in Asian trading on Friday against a basket of major and minor currencies, deepening its losses for the fourth consecutive day against the US dollar and hitting its lowest level in 20 months. The currency is heading toward a fourth straight weekly loss as investors continue buying the US dollar as a preferred safe-haven asset amid escalating military confrontations in the Middle East.

Japanese authorities are closely monitoring movements in the domestic currency in the foreign exchange market, although the room for intervention appears more limited than in previous periods. This comes despite pressure pushing the yen toward the 160 per dollar level, which was previously viewed as a threshold that could trigger official intervention.

Price Overview

Japanese yen exchange rate today: the US dollar rose 0.25% against the yen to 159.68, the highest level since July 2024, up from the session opening level of 159.32, with a session low of 159.01.

The yen ended Thursdays session down about 0.25% against the dollar, marking its third consecutive daily loss due to the escalation of the Iran war.

Weekly performance

Over the course of this weeks trading, which officially ends with todays settlement, the Japanese yen has fallen about 1.25% against the US dollar so far, putting it on track for a fourth consecutive weekly loss.

US dollar

The dollar index rose more than 0.1% on Friday, extending its gains for the fourth straight session and reaching a four-month high of 99.86 points, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, with the Iran war approaching its third week and fears growing that the conflict could widen across the Middle East. This has pushed energy prices sharply higher and increased negative pressure on the global economy.

Global oil prices

Oil prices surged sharply as Iran intensified attacks on oil facilities and transportation infrastructure across the Middle East, increasing fears of a prolonged conflict and potential disruptions to global oil flows.

Irans new Supreme Leader, Mojtaba Khamenei, pledged on Thursday to keep the Strait of Hormuz closed. The Iranian military command had already warned the previous day that the world should prepare for oil prices reaching $200 per barrel after three more ships came under attack in the blockaded Gulf.

Analysts said the International Energy Agencys proposal to release 400 million barrels from oil reserves a record amount would not be sufficient to ease fears of supply disruptions from the Middle East.

Japanese authorities

Finance Minister Satsuki Katayama avoided giving a direct answer on Friday when asked about the possibility of intervening in the currency market, saying the government is ready to act at any time while considering the impact that currency movements may have on citizens livelihoods.

Katayama told parliament earlier this week that Japan had strongly urged its Group of Seven counterparts to hold a meeting to discuss measures to address rising oil prices, referring to discussions that resulted in an agreement to consider releasing emergency strategic oil reserves.

Shota Ryu, a foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities, said that if Japan intervenes now, the impact may be limited because dollar buying as a safe haven is likely to continue unless the situation in the Middle East stabilizes.

Ryu added that intervention could even encourage speculators to sell the yen again once it rebounds.

Japan justifies intervention in the foreign exchange market based on an agreement among the advanced G7 economies allowing authorities to intervene to counter excessive volatility caused by speculative moves that deviate from economic fundamentals.

Japanese interest rates

Markets currently price a 5% probability that the Bank of Japan will raise interest rates by a quarter point at the March meeting, while the probability of a quarter-point hike in April stands at 35%.

In the latest Reuters survey, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts from Morgan Stanley and MUFG wrote in a joint research report that while the probability of a rate hike in March or April had already been considered low, the growing uncertainty surrounding developments in the Middle East makes it more likely that the Bank of Japan will adopt a more cautious stance, reducing the chances of near-term rate increases.

To reassess these expectations, investors are awaiting further economic data on inflation, unemployment, and wages in Japan.