USD/JPY hits session highs near 158.00 on rising US-Iran tensions

Finance

USD/JPY hits session highs near 158.00 on rising US-Iran tensions

The US Dollar (USD) keeps crawling higher against the Japanese Yen (JPY) for the third consecutive day on Tuesday. The pair has reached the upper range of the 157.00s, trading at 157.65 at the time of writing, as the escalating tensions in the Strait of Hormuz boost the safe-haven US Dollar.

US President Donald Trump stirred the hornets hive on Monday, vowing that the US military would help free stranded vessels in the Strait of Hormuz. Two vessels are reported to have crossed the waterway, while other ships attempting to follow reported fires and explosions, and an Oil port in the United Arab Emirates (UAE) has been hit, allegedly by Iranian missiles.

Furthermore, Irans Parliament Speaker Mohammad Bagher Ghalibaf affirmed that a “new equation” has solidified the closure of the Strait of Hormuz and has blamed the US and its allies for violating the ceasefire and imposing a blockade.

Against this backdrop, Oil prices remain near long-term highs. The US benchmark West Texas Intermediate (WTI) barrel trades above $101 at the time of writing, while the Brent barrel remains above $110, adding strain to the oil-importing Japanese economy and weighing on the JPY

The Yen has been trimming gains following a sharp jump on Thursday, highly likely due to an intervention by the Japanese authorities. Tokyo stepped in to support the JPY as the USD/JPY crossed the 160.00 mark, which is considered a line in the sand for the Japanese Ministry of Finance.

Investors, however, hold doubts about the sustainability of Tokyo interventions in the long run, as fundamentals are set against the Yen. The high crude prices, coupled with the Bank of Japans (BoJ) low interest rates, in a context of higher global bond yields as major central banks turn hawkish, are highly likely to keep the Yen on the defensive.