Iran Conflict Pushes Up Energy Costs, Yen Under Pressure Despite Hawkish BOJ Predictions!
The Japanese yen traded around 159.5 per US dollar on Monday (April 6), holding near its weakest level since July 2024. The yen's weakening occurred as markets assessed the escalation of the Iranian conflict and rising energy costs as the main pressures on the Japanese currency.
Tensions escalated after US President Donald Trump threatened on Sunday to attack Iranian power plants and civilian infrastructure starting Tuesday if the Strait of Hormuz was not reopened. Tehran rejected the ultimatum, and the shipping lane reportedly remains effectively closed, sparking concerns about energy supply disruptions and rising prices.
This surge in energy risk weighed on the yen as Japan is highly sensitive to rising import costs, while the dollar tends to find support when geopolitical uncertainty increases. At the same time, markets are also weighing the conflict's knock-on effects on global inflation and interest rates, which could dampen demand for dollar-denominated assets.
On the policy front, market expectations are hawkish for Japan, with a more than 70% chance of a Bank of Japan interest rate hike this month, and more than two additional hikes expected by year-end. However, the support from these rate hike expectations has not been enough to offset pressure from risk sentiment and energy factors.
Market participants are also monitoring potential exchange rate stabilization measures from Tokyo following recent stern warnings from officials. Short-term focus is on developments in the Strait of Hormuz, energy price movements, Japanese authorities' communication signals regarding the exchange rate, and the BOJ's decisions and guidance regarding the direction of policy normalization. (asd)
Source: Newsmaker.id
