USD/JPY declines after Hormuz resumes operations, risk sentiment impacts US Dollar

USD/JPY Slides Amid Improved Middle East Stability

As of now, USD/JPY has dropped to approximately 158.20, marking a 0.61% decline on Friday after reaching a peak of 159.53 earlier in the day. The currency pair is experiencing increased selling activity, largely due to easing geopolitical tensions in the Middle East, which have diminished the appeal of the US Dollar as a safe-haven asset.

The decline intensified following a statement from Iran’s Foreign Minister Abbas Araghchi, who confirmed that all commercial ships can freely pass through the Strait of Hormuz for the remainder of the ceasefire. He further clarified that vessels will follow a coordinated route previously outlined by Iran’s Ports and Maritime Organisation.

This update has alleviated fears of significant disruptions to global energy supplies—a concern that had previously bolstered the US Dollar during periods of heightened risk aversion and uncertainty over oil availability. With geopolitical risks subsiding, the Greenback is now under pressure.

Diplomatic Progress and Market Sentiment

Investors are also monitoring ongoing diplomatic efforts between the US and Iran. US President Donald Trump recently indicated that negotiations are nearing a resolution, raising optimism for lasting stability in the region.

Japanese Yen Influenced by Policy Outlook

On the Japanese front, the Yen’s movement is shaped by expectations surrounding monetary policy. Bank of Japan Governor Kazuo Ueda has cautioned that Japan may face stagflation, with inflation fueled by energy supply shocks and sluggish economic growth. This scenario could prompt the central bank to adopt a conservative approach to further rate increases.

According to Société Générale analysts, forecasts for monetary tightening in Japan have been revised, with the next potential rate hike anticipated around June or July. Consequently, the Yen’s performance remains closely tied to policy expectations and the interest rate gap between Japan and the US.