The Japanese yen has fallen to a new low since 2024 due to the conflict between the United States and Iran, and the strong US dollar has limited Japan's intervention.

Due to the ongoing warfare in the Middle East, oil prices have been continuously pushed higher, and concerns about inflation have intensified. Against this backdrop, investors have been cutting their risk exposures ahead of the weekend. As a result, the exchange rate of the Japanese yen has plunged significantly, falling to its lowest level since 2024. Specifically, the Japanese yen against the US dollar exchange rate briefly dropped by 0.2% to 159.69; earlier, Brent crude oil, after experiencing the most volatile week of trading ever, was hovering around $100 per barrel. Meanwhile, the Japanese government bond market also performed poorly, with the yield on 10-year Japanese government bonds climbing 5.5 basis points to reach 2.235%. The continuous rise in oil prices is bringing increasingly heavy inflation pressure to Japan, which has a high dependence on Middle Eastern oil. At the same time, traders have disclosed that hedge funds have been buying short-term US dollar call options against a basket of currencies as a hedge against the risk of the US dollar opening higher on Monday due to Iran war-related news over the weekend. Takafumi Onodera, head of sales and trading at Mitsubishi UFJ Trust Bank's New York branch, said, "If the Iran war leads to oil prices and yields remaining high, the US dollar to Japanese yen exchange rate could gradually approach 160. In addition, Japan's actual intervention may face greater difficulties, meaning the US dollar against the Japanese yen exchange rate may continue to rise." The Japanese yen continues to depreciate, and its exchange rate is now approaching a key level that the Japanese authorities had previously intervened to support. However, analysts point out that with the current Iran conflict situation and a series of resilient economic data released by the US, the fundamentally strong US dollar continues to be driven, making it still difficult for the Japanese authorities to intervene in the exchange rate. Bloomberg strategist Mark Cranfield believes that for the Japanese authorities, the current situation of rising short-term US Treasury yields in the US is not the most desirable time to try to curb the weakening trend of the yen. As the two-year US Treasury yield breaks key levels and with the Bank of Japan about to convene a meeting with the general expectation that it will stand firm, it further adds strong momentum to the US dollar's upside. On Friday, Japan's Finance Minister Satsuki Katayama told reporters that Japanese financial authorities are maintaining closer contacts with relevant parties in the US than ever before, while avoiding commenting on currency interventions. Japanese officials have explicitly stated that they are more concerned about the volatility and speed of changes in exchange rates rather than the specific level of the exchange rate. David Forrest, senior strategist at Crdit Agricole Corporate and Investment Bank in Singapore, pointed out, "While officials have threatened repeatedly to intervene in coordination with the US, they have not acted, and such interventions are limited." This also explains why the impact on the Japanese yen has been limited. "The verbal intervention signals issued by officials this time are not strong, as they did not use the typical wording warning of intervention." Last month, Seiko Hashimachi scored a landslide victory in the Lower House elections, which initially provided support for the yen. However, subsequent reports indicated that she had concerns about further rate hikes, and the two candidates she nominated for the Bank of Japan board were doves. As a result, the yen once again faced downward pressure.