The impact of war in the Middle East has put markets back on yen intervention alert, boosting the dollar and pressuring other currencies as inflation risks rise.
Japanese officials have stepped up verbal warnings as the yen flirts with the 160 level that many traders view as a line in the sand.
As observers try to parse the fresh volatility, Moody's Analytics' Stefan Angrick talks about what's happening with the currency. Edited excerpts follow:
How is the yen's safe-haven status holding up in the current environment?
The longstanding view of the yen as a haven in economic crises is a bit flawed--you can see why it would be a haven in a scenario centered around something like a banking crisis abroad. In that sort of situation, Japan is an attractive market, as it's very liquid, very stable. Things don't typically break. But in a situation like the one we're in now, where you have a surge in global commodity prices, that's negative for the yen. So that status as a haven currency is always context-dependent, and I don't know that it ever really applied during a commodity shock. It's a different animal.
Do you expect the yen to keep losing value if the conflict continues?
In principle, it should. As global commodity prices go up, so does a country's import bill. Trade balance deteriorates, current account deteriorates, and that puts depreciation pressure on your currency. That is something that operates on clear, fixed rules. But FX isn't only about that, it's about narratives. And perceptions of the yen had already pushed it very far away from economic fundamentals. When the Middle East shock began, the yen was already looking incredibly, unreasonably weak. It was at about 158 to the dollar, and now it's close to 160. That makes trading the yen really difficult, and it makes life really hard for policymakers. Verbal warnings can only do so much. At the end of the day, it's about the actions that follow.
So what should markets expect on the intervention front?
My sense is markets are right to look at the 160 level as one that makes policymakers uncomfortable. Markets are very conscious that policymakers wouldn't like it if the yen were to weaken beyond that. That doesn't mean it won't temporarily, but markets know that if the yen softens substantially beyond 160, authorities will push back pretty hard. Authorities are also aware of that, and they don't want to communicate ahead of time to when they will step in. So they will let markets do their thing, and they will be very deliberate about when they intervene. They will try and push back on excess volatility. But they're not going to try and push back against the fact that the yen is very weak. They're not going to come in right now and try to get the yen to go to 150 or 140--this is not the time to correct undervaluation.
Taking into account the high degree of uncertainty, what's next?
It really depends on what happens in the Middle East. If the situation stays contained and winds down in the next few weeks, and shipping through the Strait of Hormuz resumes, the economic implications should be pretty contained. In that case, I don't think the yen will slide much further and then Japanese authorities wouldn't do much more. They're just going ride it out, and focus will return the long term path on rates again. That's our baseline. So for now, we don't expect that they're going to do anything. But if the conflict escalates, if it drags on, there will be more pressure on the yen, and intervention becomes more likely.
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
April 07, 2026 05:52 ET (09:52 GMT)
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