The Japanese yen fell in Asian trading on Monday against a basket of major and minor currencies, extending its losses for the second consecutive day against the US dollar and moving lower toward its lowest level in 20 months. The decline comes as investors continue buying the US dollar as a preferred safe-haven asset amid the escalation of the war in the Middle East.

The yen’s weakness comes under the watch of Japanese authorities, after Japan’s top currency diplomat stated that the government is ready to take action to address volatility in the domestic currency in the foreign exchange market.

Price Overview

Japanese yen exchange rate today: the US dollar rose 0.25% against the yen to ¥159.62, up from the session opening level of ¥159.20, with a session low of ¥159.01.

The yen ended Friday’s session down about 1.0% against the dollar, resuming its losses that had paused the previous day during a recovery from a 20-month low of ¥159.90.

US dollar

The dollar index rose more than 0.2% on Monday, extending its gains for the second consecutive session, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors focus on buying the dollar as a preferred safe-haven asset amid the escalation of the war in the Middle East, especially after US President Donald Trump threatened to strike Iran’s electricity grid if Tehran does not reopen the Strait of Hormuz, while Iran’s Revolutionary Guard pledged to respond by targeting infrastructure in neighboring Gulf countries.

Israel announced launching large-scale strikes on Iran, while Saudi Arabia reported that the Iranian military fired two ballistic missiles toward Riyadh.

Fatih Birol, Executive Director of the International Energy Agency, warned that the current crisis poses a serious threat to the global economy and is worse than the energy crisis that occurred in the Middle East during the 1970s.

Japanese authorities

Atsuki Mimura, Japan’s Vice Minister of Finance for International Affairs and top currency diplomat, issued a strong warning on Monday about the current risks in the foreign exchange market resulting from geopolitical turmoil.

Mimura said that the “intense speculation” currently seen in oil and gas markets due to the Iran war could spill over into the foreign exchange market, leading to “irrational” fluctuations in the yen’s exchange rate.

He added that Japanese authorities are closely monitoring currency movements with the highest level of vigilance, stressing that the government “will not tolerate excessive speculative moves” that do not reflect economic fundamentals.

Japanese interest rates

The Bank of Japan kept interest rates unchanged last week for the second consecutive meeting.

Following the meeting, markets continued to price the probability of a quarter-point rate hike at the April meeting at below 30%.

To reassess these expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.

Wall Street ended Friday’s session with sharp losses, as the S&P 500 closed at its lowest level in six months, with the war between the United States and Israel against Iran entering its fourth week, heightening concerns over inflation and the potential for higher interest rates.

The fallout from the Middle East conflict continues to show no signs of easing. The US military has deployed an amphibious assault ship carrying thousands of additional Marines and sailors to the region, while Iran’s new Supreme Leader praised the country’s “unity” and “resistance.”

Jack Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, said: “The market is starting to accept that this conflict could last longer than initially expected, and I think that’s why markets are pulling back. It may not last just a few weeks — it could stretch into months.”

Big tech stocks decline:

Shares of major technology companies fell, with Nvidia and Tesla dropping more than 3% each. Meanwhile, Alphabet, Meta, and Microsoft declined by around 2% each.

US Treasury bonds also fell for a third consecutive session, alongside a broader selloff in government bonds in the UK and Europe, as the Middle East conflict kept oil prices elevated and reinforced inflation concerns.

US interest rate futures indicate that markets now see a higher probability of the Federal Reserve raising rates by the end of 2026 than cutting them, according to the CME FedWatch tool.

Padhraic Garvey, Head of Global Rates and Debt Strategy at ING in New York, said: “We are in an environment that is pushing rates higher, driven by expectations of rising inflation linked to oil prices. With the war entering its fourth week, this pressure does not appear to be fading anytime soon.”

Stock index performance:

The S&P 500 fell 1.51% to close at 6,506.48 points, its lowest level since September, posting a weekly loss of 2%.

The Nasdaq dropped 2.01% to 21,647.61 points, now about 10% below its October 29 peak, also recording a 2% weekly decline.

The Dow Jones Industrial Average declined 0.96% to 45,577.47 points, with weekly losses reaching 2.1%.

The Russell 2000 index of small-cap stocks fell 2.26%, leaving it down 10% from its January 22 high.

Nine of the 11 S&P 500 sectors ended lower, led by utilities, which dropped 4.11%, followed by real estate, down 3.15%.

The energy sector was nearly flat on the day but marked its thirteenth consecutive weekly gain — its longest streak since at least the late 1980s — supported by geopolitical tensions in Venezuela and the Middle East.

Friday also saw the simultaneous expiration of stock options, index options, and futures contracts — known as “triple witching” — driving a surge in trading volumes to 27.5 billion shares, compared to an average of 20.1 billion over the previous 20 sessions.

Over the week, the S&P 500 lost about 1.9%, while both the Nasdaq and Dow fell more than 2%. Since the start of the Iran war on February 28, the S&P 500 has declined 5.4%, the Nasdaq is down 4.5%, and the Dow has dropped about 7%, with all three indexes trading below their 200-day moving averages, reflecting deteriorating investor sentiment.

Shares of Super Micro Computer plunged 33% after three individuals linked to the company were accused of smuggling at least $2.5 billion worth of AI technology to China, while rival Dell Technologies saw its shares rise.

Meanwhile, FedEx provided an upbeat outlook, noting that global demand remains stable despite geopolitical tensions, sending its shares up about 1%.

Declining stocks outnumbered advancers in the S&P 500 by a ratio of 3.4 to 1, with the index recording 11 new highs and 36 new lows, while the Nasdaq posted 43 new highs versus 274 new lows.

Oil prices fell by more than 1% on Friday after the United States announced measures to manage the supply crisis, while major European countries, along with Japan and Canada, offered to join efforts to secure safe passage for shipping through the Strait of Hormuz.

Brent crude for May delivery dropped $1.58, or 1.45%, to $107.07 per barrel by 12:20 GMT. US West Texas Intermediate crude for April delivery, which expires on Friday, fell $1.30, or 1.35%, to $94.84 per barrel.

The more actively traded May WTI contract stood at $94.30, down $1.25, or 1.31%. On a weekly basis, Brent was on track to gain 3.8%, while WTI was down about 3.9% compared to last Friday’s close, with the spread between the two benchmarks widening to its highest level in 11 years on Wednesday.

The region saw fresh escalation, as Israel and Iran exchanged new attacks on Friday following a strike on an oil refinery in Kuwait.

US Energy Secretary Chris Wright said that lifting sanctions on Iranian oil shipments stranded at sea would allow supplies to reach Asia within three to four days, adding that Asia needs more oil and that the United States is participating in coordinated releases from strategic reserves in the coming months.

His remarks followed comments from US Treasury Secretary Scott Bessent, who said Washington may soon lift sanctions on Iranian oil stuck on tankers, and indicated the possibility of further drawdowns from the Strategic Petroleum Reserve.

In a joint statement, the UK, France, Germany, Italy, the Netherlands, and Japan expressed their “readiness to contribute to appropriate efforts to ensure safe transit through the strait.”

Focus turns to Hormuz

Analysts say energy prices are likely to remain elevated as long as disruptions persist in the Strait of Hormuz, through which 20% of global oil and LNG supplies pass.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the likelihood of a rapid price decline is low, as damage to production cannot be quickly repaired, adding that the market remains undersupplied.

UBS analyst Giovanni Staunovo said price momentum will stay bullish as long as oil flows through the strait remain constrained.

IEA Executive Director Fatih Birol warned that restoring oil and gas flows from the Gulf could take up to six months, noting that both markets and policymakers are underestimating the scale of the disruption.

Supply risks could intensify further, as the Trump administration is reportedly considering plans to seize or blockade Iran’s Kharg Island to pressure Tehran into reopening the strait, according to Axios.

Brent had surged above $119 per barrel on Thursday after Iran responded to an Israeli strike on a major gas field by disrupting 17% of Qatar’s LNG export capacity—damage that could take years to repair.

Trump said he had asked Israel not to repeat attacks on Iran’s gas infrastructure, while Israeli Prime Minister Benjamin Netanyahu stated that the strike was carried out unilaterally and that Iran no longer has the capability to enrich uranium or produce ballistic missiles.

The US dollar edged slightly higher on Friday, but remained on track for a weekly loss, as rising energy prices reshaped global interest rate expectations and left the Federal Reserve as the only major central bank not expected to hike rates this year.

Before the outbreak of the US–Israel–Iran conflict in late February, investors had been pricing in two Fed rate cuts in 2026. Those expectations have since been scaled back sharply, while other central banks have turned more hawkish.

Gains for major currencies

The euro, yen, pound sterling, and Swiss franc all posted weekly gains against the dollar, as policymakers signaled readiness to raise interest rates to counter inflationary pressures driven by the energy crisis.

The euro rose about 1.4% over the week despite easing slightly to $1.1571

The yen gained 0.7% to 158.59 per dollar

Sterling advanced 1.3% to $1.3391

Analysts said the dollar is under pressure due to the unexpected hawkish shift among non-US central banks, alongside a relative improvement in energy market expectations.

Central banks turn hawkish

The European Central Bank left interest rates unchanged but warned of rising inflation due to energy, with expectations that discussions around rate hikes could begin soon, possibly leading to increases in the coming months.

The Bank of England also held rates steady but signaled readiness to act, prompting markets to price in tightening of around 80 basis points this year.

In Japan, policymakers hinted at the possibility of a near-term rate hike, supporting the yen, while the Reserve Bank of Australia raised rates for the second time in two months.

A different stance from the Fed

In contrast, the Federal Reserve kept rates unchanged, with Chair Jerome Powell stressing that it is too early to assess the economic impact of the war.

Traders have largely abandoned expectations for rate cuts this year, but have yet to price in hikes—unlike in other major economies.

Impact of war and energy

Brent crude prices have surged 50% since the start of the conflict, driven by supply disruptions and the near-total closure of the Strait of Hormuz.

Despite the dollar’s weekly decline, some analysts believe the weakness may not last, as the currency could regain strength on safe-haven demand, particularly if the conflict persists and given the US role as a major energy producer.

Overall, currency movements reflect a significant shift in global monetary policy expectations, driven by the energy crisis and escalating geopolitical tensions.