USD/JPY extended its modest decline in Asian trading on Tuesday, easing back from the 159.85 area and slipping toward 159. The pair remained under pressure, although the downside appeared limited as competing fundamental forces continued to offset one another.
The US dollar came under renewed strain after investors interpreted recent developments in Middle East diplomacy as reducing immediate safe-haven demand. Market participants remain hopeful that dialogue with Iran can continue despite the lack of a breakthrough in weekend discussions. Comments from US officials pointing to some progress have also encouraged the view that tensions may not escalate further in the near term. That shift has weighed on the dollar and added to selling pressure on USD/JPY .
At the same time, uncertainty around the outlook for US inflation and Federal Reserve policy has kept the dollar on the defensive. Friday’s inflation data showed the sharpest rise in nearly four years, prompting investors to reassess the timing and scale of any future rate cuts. Even so, traders have not fully abandoned expectations for easier policy later this year, especially if geopolitical risks continue to ease. The combination has left the greenback without a clear direction and sent it to its weakest level since early March.
The Japanese yen, however, has struggled to build sustained strength. Concerns are mounting that renewed instability in the Strait of Hormuz could trigger higher energy costs and damage Japan’s import-dependent economy. As a major buyer of crude from the Middle East, Japan is especially vulnerable to supply disruptions and price shocks. That has limited appetite for aggressive yen buying, even as the currency benefits from a softer dollar.
Looking ahead, speculation that Japanese authorities may intervene to prevent excessive yen weakness is likely to keep USD/JPY from extending gains too far. For now, the pair appears trapped between a softer US dollar and caution over Japan’s economic exposure to rising energy and geopolitical risks.
