USD/JPY edges higher on Wednesday as renewed escalation in the Middle East boosts demand for the US Dollar (USD) and lifts Oil prices, weighing on the Japanese Yen (JPY).
At the time of writing, the pair is trading around 162.50, close to 40-year highs
The United States and Iran exchanged fire overnight following attacks on commercial ships near the Strait of Hormuz earlier this week. On Wednesday, US President Donald Trump declared that the ceasefire deal with Iran was “over” and said dealing with Tehran was “a waste of time” while speaking at the NATO Summit in Ankara, Turkey. The latest escalation has dampened hopes for a near-term peace deal, reigniting concerns over potential disruption to global Oil flows through the critical waterway, where shipping had been gradually improving since last month’s interim peace agreement.
The rebound in Oil prices has revived inflation concerns, increasing pressure on major central banks to tighten monetary policy. At the same time, higher energy prices are particularly negative for the Japanese Yen, as Japan imports nearly 90% of its crude Oil from the Middle East. However, with speculation growing that Japanese authorities could intervene to support the Yen, traders remain cautious about aggressively chasing further gains in USD/JPY.