By Megumi Fujikawa
TOKYO--Foreign-exchange markets are back on yen intervention watch, as the worsening conflict in the Middle East stokes anxiety about Japan's energy-dependent economy.
President Trump's threat that the U.S. will attack Iran's power plants if the country doesn't fully reopen the Strait of Hormuz--a key energy shipping route--sparked safe-haven demand for the dollar over the weekend, renewing pressure on the yen.
The dollar hit 159.65 yen in Asian trading on Monday, from around 157.50 yen last week.
A move back to the 160 zone--widely seen as Japanese authorities' line in the sand--has market participants on alert that the government will step in to prop up the yen, in what would be the first direct intervention since July 2024.
Japanese finance officials have stepped up verbal defense of the yen in recent days. Finance Minister Satsuki Katayama said the government stands ready to "take all possible measures under any circumstances," acknowledging the impact foreign-exchange fluctuations have on people's daily lives, including making the cost of imported goods more expensive.
The latest episode recalls a period of frenzied speculation in January when the yen abruptly surged after weakening for weeks, a move widely attributed to a suspected "rate check" by authorities in either Japan, the U.S. or both. Rate checks are considered a prelude to actual intervention and involve central banks contacting commercial lenders to get price quotes for currency trades.
This time, markets are watching for intervention as Japan faces a complex triple threat: rising crude prices, a widening trade deficit and a fundamental shift in domestic fiscal policy.
"While often dismissed as a mere stop-gap measure, intervention serves as a crucial strategic defense to buy time while global oil prices remain elevated," said SMBC Nikko Securities strategist Makoto Noji.
That would effectively be the only viable tool Japan has to curb inflation and the yen's weakness, Noji said. Since Japan depends on energy imports, it faces a "hellish" cycle where fiscal spending is used to offset fuel costs, risking further yen depreciation, he added.
The flight-to-safety bid for the dollar that is helping to undermine the yen could also be fleeting, some analysts say.
Sony Financial Group's Juntaro Morimoto said any gains for the dollar against the yen driven by the unwinding of long-yen positions may be more muted than in the past as data suggests that speculative positions are already net-short for the yen.
NLI Research Institute senior economist Tsuyoshi Ueno expects the Middle East situation to begin stabilizing this spring, which would likely see the yen reverse course and the dollar settle around 157 yen in three months.
However, if the conflict drags and oil prices stay high, the yen will likely weaken further amid growing speculation of U.S. monetary tightening, Ueno said.
The Federal Reserve delivered a hawkish hold decision last week, and some analysts see a risk of a rate hike if inflation becomes intolerable.
"Since such moves [lower in the yen] are backed by economic fundamentals, the yen would likely test new lows even if the government decides to intervene," Ueno said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
March 23, 2026 02:49 ET (06:49 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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