The Japanese yen, typically viewed as a haven in times of global tension, has fallen sharply following Israel’s missile attacks on Iranian nuclear and military sites on June 13. Since the strikes, the yen has weakened 2.4% against the U.S. dollar and 1.4% against the Swiss franc.
Japan’s heavy reliance on imported oil leaves its economy vulnerable to energy price spikes. With crude oil prices surging amid the Israel-Iran conflict, analysts warn the yen’s decline may accelerate. A worsening trade balance and rising import costs are diminishing the currency’s traditional safe-haven appeal.
Speculators who had bet on a stronger yen may be forced to unwind those positions, triggering further weakness. Meanwhile, the yen’s depreciation has mixed effects on Japanese equities, boosting exporters’ overseas revenue while increasing input costs due to higher energy prices.
For Japan’s embattled government, the weaker yen compounds inflation pressures at home—especially in staples like rice—at a politically sensitive time, with upper house elections approaching.
“A rise in crude oil prices causes a deterioration not only in Japan’s trade balance but also its terms of trade, so it fundamentally acts to weaken the yen,” Citi analysts wrote in a note. They forecast the yen could fall to 150 per dollar by September.
The Bank of Japan’s dovish stance at its recent policy meeting has further amplified downward pressure on the currency, analysts said.
The yen’s recent slump echoes its reaction to the start of Russia’s invasion of Ukraine in 2022, when it lost more than 11% over two months.
With geopolitical uncertainty intensifying after U.S. airstrikes on Iran, markets are bracing for continued volatility.
Reuters/s.s