Japanese Yen softens on Middle East tensions, Japan signals scope for more intervention

The USD/JPY pair gains ground to around 157.15 during the early European session on Monday. The US Dollar (USD) edges higher against the Euro (EUR) as ongoing concerns over the Middle East conflict boost safe-haven flows. 

Middle East tensions have risen after US President Donald Trump rejected Iran’s latest peace proposal, a move that pushed oil prices higher and weighed on the Cable. Tasnim said Tehran's proposal included an immediate end to the war on all fronts, a halt to a US naval blockade and guarantees of no further attacks on Iran.

Nonetheless, persistent intervention threats from Japanese authorities might cap the upside for the pair. Japanese officials reportedly intervened in the currency market again during the Golden Week. Markets estimated the cost of these additional moves at approximately ¥4 trillion to ¥5 trillion ($32 billion).  

Japan’s top foreign exchange official Atsushi Mimura said last week that continued intervention was possible, adding that International Monetary Fund (IMF) rules don’t limit how often intervention can be conducted.

"Intervention risk and strong official warnings made it unattractive to chase weakness near 160,” said Stefan Rittner, senior portfolio manager at Allianz Global Investors, who is neutral on dollar-yen. Still, "persistent structural headwinds limit the case for a sustained yen rebound despite the cheap valuation and further intervention risk should rise again if dollar-yen approaches prior levels,” Rittner added.