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

With tensions in the Middle East escalating, the yen depreciation is intensifying. With fears that higher oil prices will cause Japan’s trade balance deficit to widen, the old phenomenon of “buying yen when trouble is brewing” is no longer seen. What the market is focusing on is the pattern of “2022-style yen depreciation” brought about by Russia’s invasion of Ukraine. More and more views believe that buying the US dollar in extraordinary times and the rise in energy prices will accelerate the sell-off of the yen.

“Given concerns about oil prices rising due to the Strait of Hormuz being blocked, there is no atmosphere of proactively buying yen,” a foreign-exchange broker at a Japanese domestic bank explained the mood in the FX market after the start of this week.

On March 3, in the London foreign exchange market, the yen once briefly depreciated against the US dollar to the range of 1 USD = 157.90 yen, marking the lowest level since February 9. It closed at around 156 yen over the weekend. Against the Swiss franc, the yen fell for a second day to the lowest level of roughly 203 yen per 1 Swiss franc. Against the Australian dollar, it also dropped for a third day to a new low since 1990.

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