The US dollar extended its rebound against the Japanese yen during Monday's Asian trading session, climbing back above the key 162.00 level and moving away from recent corrective pressure near 161.30. Market attention remains focused on the impacts of escalating Middle East tensions and the divergence between US and Japanese monetary policies.
The United States conducted another round of military strikes against Iran over the weekend. This followed Iran's announcement of closing the Strait of Hormuz and its subsequent missile attacks on US military facilities in the Gulf region. The escalation in military confrontation between the two sides has heightened uncertainty in global energy markets, keeping international oil prices elevated.
For Japan, the evolving situation in the Middle East carries significant implications. The nation relies on the Strait of Hormuz for over 90% of its crude oil imports. A prolonged disruption of the strait could not only drive up Japan's energy costs but also increase pressure on corporate production and household consumption, thereby weighing on the country's economic growth prospects. These concerns are dampening demand for the yen and driving capital toward safe-haven assets like the US dollar.
Concurrently, the monetary policy divergence between the US and Japan remains a core factor influencing the exchange rate. Markets currently expect the US Federal Reserve to maintain its benchmark interest rate within the 3.50%-3.75% range in July. Although the Bank of Japan raised its policy rate to 1.0% in June, marking its highest level since 1995, a significant interest rate differential of approximately 250 to 275 basis points persists between the two nations. This continues to support active carry trades where yen is borrowed to fund purchases of higher-yielding assets, exerting sustained pressure on the Japanese currency.
Furthermore, rising international oil prices have reignited market concerns over global inflation. Investors anticipate that higher energy costs could slow the pace of disinflation in the United States, potentially increasing the likelihood of the Fed maintaining its restrictive monetary policy for longer. Markets have now repriced expectations to include at least one more Fed rate hike in 2026, providing additional support for the dollar.
However, yen bears are not without their own concerns. As the dollar-yen pair continues to hover near multi-year highs, market anxiety has noticeably increased regarding the potential for renewed intervention in the currency market by the Japanese government and central bank. Japanese authorities have previously intervened on multiple occasions when the yen depreciated sharply, and this factor is currently placing some constraints on further upside for the dollar-yen pair.
This week, market focus will shift to the release of the US Consumer Price Index data for June and testimony before Congress by Federal Reserve Chair Kevin Warsh. If US inflation proves stronger than expected, market expectations for the Fed to maintain high interest rates could intensify, potentially driving the dollar higher. Conversely, if inflation data shows signs of cooling, it could alleviate upward pressure on the dollar and offer the yen some breathing room.
From a technical perspective, the daily chart for dollar-yen maintains a clear uptrend, with the price reclaiming its position above the major moving average system, indicating that the bullish structure remains dominant. The MACD indicator continues to operate above the zero line with the red histogram expanding, suggesting a strengthening of upward momentum. The RSI is situated near overbought territory, reflecting continued strong bullish momentum while also signaling a degree of short-term overbought risk. A decisive break above 162.50 could open the path for further gains toward the 163.50 and 164.80 regions. On the downside, key support zones to watch are near 161.30, 160.50, and 159.80.
On the 4-hour chart, the dollar-yen pair has moved back above its short-term moving averages. The MACD has formed a golden crossover and continues to diverge upward, while the RSI has climbed above 60, indicating that short-term buying power has regained the upper hand. Should upcoming US inflation data continue to support the dollar, the pair could challenge resistance above 162.50. However, given the persistent expectation of potential Japanese intervention, a significant pullback remains possible should any policy signals emerge or market sentiment shift.