Japan Faces Higher Bar for Yen Intervention as Iran War Drives Dollar Demand and Oil Prices Higher

Japan intervened in currency markets in 2022 and 2024 to counter yen selling driven by carry trades exploiting U.S.-Japan interest rate gaps. Now, with the yen sliding below 159 per dollar and approaching the key 160 threshold, the situation is fundamentally different. The current weakness is fuelled by safe-haven dollar demand tied to the Iran war and surging oil prices. Net short yen positions stood at just 16,575 contracts in early March, compared to roughly 180,000 contracts in July 2024 when Japan last intervened heavily. Because the yen's decline reflects economic fundamentals rather than speculation, Japan cannot count on G7 backing for solo intervention. Some analysts warn the yen could fall as low as 165 per dollar.