Yen Slides as Dollar Strengthens on Tougher US Sanctions Against Iran

The dollar-yen pair is trading near 159.06535, extending its recent strength. Expectations of escalated US sanctions on Iran are boosting dollar demand, while the yen has failed to attract traditional safe-haven buying from geopolitical tensions and remains under pressure.

**Yen's Safe-Haven Appeal Fades**

Market data shows the yen has depreciated about 1% since the US-Israeli military strikes on Iran over the past weekend, a sharp contrast to the pattern of yen buying surges during geopolitical crises in the past. Neil Newman, Japan strategist at Astris Advisory, noted that Japanese companies have not repatriated overseas earnings on a large scale during crises for roughly four years, instead continuing to step up overseas investment, which has fundamentally undermined the yen's safe-haven logic. Tai Hui, chief market strategist for Asia-Pacific at J.P. Morgan Asset Management, also said that volatility has significantly reduced the yen's appeal as a hedge currency, and investors are cautious about using the yen to hedge risks when assessing the Iran situation.

**Dollar Benefits from Sanction Expectations**

The US threat of stricter sanctions on Iran, including potential economic measures against its trading partners, provides support for the dollar. Market sentiment leans toward holding dollar assets amid rising uncertainty rather than the traditional safe-haven yen. Japan itself faces vulnerability due to heavy reliance on energy imports, and the US-Israel-Iran conflict increases its exposure to risks of surging energy prices and high inflation, further weighing on the yen.

**Intervention Risks and Policy Divergence**

The yen's persistent weakness has Tokyo traders on alert for possible government intervention. Meanwhile, domestic policy uncertainty in Japan is also dragging the yen, as the market digests the new government's large-scale spending plans and its resistance to further rate hikes by the Bank of Japan. Analysts believe the dollar-yen pair faces resistance near the 159 level in the short term and may tend toward range-bound trading, but the overall bias remains firm.