Why hasn't the Japanese yen been bought amid the tense situation in the Middle East?

With tensions in the Middle East rising, the yen’s depreciation is accelerating. Fearing that higher crude oil prices will widen Japan’s trade balance deficit, the old phenomenon of “buying yen when things are uncertain” is no longer present. Market attention is focused on the “yen depreciation like in 2022” triggered by Russia’s invasion of Ukraine. An increasing number of views hold that buying the U.S. dollar during extraordinary times and the rise in energy prices will accelerate the selling of the yen.

“In a climate where there is no encouragement to proactively buy the yen, amid worries that oil prices are rising due to the Strait of Hormuz being blocked,” a foreign-exchange broker at a domestic Japanese bank explained the mood in the FX market since the beginning of this week.

On March 3, in the London foreign-exchange market, the yen once weakened to the range of 157.90 yen per U.S. dollar, reaching the weakest level since February 9. It closed last weekend at around 156 yen. Against the Swiss franc, the yen fell for 2 days to the lowest level since then in the range of about 203 yen per Swiss franc, and against the Australian dollar it also dropped for 3 days to a new low since 1990.

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