In the dollar/yen, even in the high-priced range, it’s hard to stay bullish all the way; what’s important now is the temperature difference between geopolitics and policy

【Dollar/Yen at High Range Yet Hard to Be All “Bullish Only”; What to Watch Now is Geopolitical and Policy Temperature Difference】

In the current forex market, dollar/yen remains at a level that tends to keep the high range in mind, but the market’s core is quite delicate. According to Reuters, on April 21 the dollar rose due to uncertainties surrounding Middle East ceasefire negotiations, sending the dollar index to about a one-week high. Meanwhile, through the 24th, as ceasefire prospects between the U.S. and Iran became unstable, crude prices rose, making geopolitical risk again a central market driver. In other words, the current dollar/yen is influenced not only by simple interest rate differentials but also strongly byrisk-off moves stemming from Middle East tensions and movements in commodity prices.

Regarding the Bank of Japan, the next major focus is the monetary policy meeting of April 27–28. Reuters reports that the BOJ is highly likely to keep policy interest rates unchanged at the April meeting, delaying any rate hike. However, that does not mean the end of the tightening path; depending on the outlook after the meeting and incoming data, expectations for a hike at a future meeting may still remain. Additionally, the BOJ, in its April Financial System Report, warned that prolonged Middle East tensions could lead to higher energy prices, higher corporate costs, and increased credit risk. The need to curb yen depreciation and the desire to avoid negative impacts on the economy clash, making the BOJ’s decision quite a difficult situation.

The U.S. side is also not in a climate that majorly shifts toward dollar selling. In the March 18 statement, the Fed notedinflation remains somewhat high and that uncertainty around the economic outlook is elevated, and that the impact of Middle East developments on the U.S. economy is unclear. The minutes released on April 8 again highlighted the high degree of uncertainty. In such a situation, it is hard to see the United States quickly turning dovish, and as a result the U.S.-Japan interest rate differential remains a factor that tends to support dollar/yen.

For individual investors, what to focus on now is likely not the direction but how long the “drivers” last. If Middle East tensions worsen again, dollar buying tends to increase; conversely, if tensions ease, dollar strength tends to ease. As the BOJ meeting approaches, policy headlines may swing up and down. Rather than mechanically chasing highs, it seems more prudent to focus on time periods with higher volatility, such as the London session or the early New York session, and respond while watching the persistence of news and market reactions, which can lead to more sustainable trading.