☆This week's yen exchange rate fell, with emergency dollar-buying continuing, and authorities exploring intervention thresholds.

This week (March 30 to April 3) in the foreign exchange market, the yen is likely to weaken. The military tensions between the United States, Israel, and Iran show no signs of easing, and “emergency dollar buying” is expected to continue. Concerns over Japan’s widening trade deficit due to persistently high oil prices have pushed the yen to a 18-month low of around 160 yen per dollar, and the downward trend is accelerating. Although wariness of possible intervention by the Japanese government is providing some support to the yen’s downside, many analysts believe the situation will remain difficult to judge as it is heavily influenced by developments in the Middle East. The market is likely to test lower levels while probing for intervention thresholds. Last week, U.S. President Donald Trump announced a postponement of attacks on Iran’s energy infrastructure, leading to a widespread view that further deterioration of the Middle East situation might be contained. While Trump mentioned progress in ceasefire negotiations with Iran, reports also suggested that Iran denied any such talks, making it unclear whether negotiations will proceed smoothly. Given expectations that resolving the situation will take time, the yen briefly fell to the mid-160 yen range in overseas markets on the 27th, marking its weakest level since July 2024. Amid the ongoing turmoil in the Middle East, oil prices remain stubbornly high. On the New York Mercantile Exchange, front-month West Texas Intermediate (WTI) futures climbed back above the key $100 per barrel level. For Japan, which relies heavily on energy imports, rising oil prices are likely to negatively impact the economy by worsening trade conditions. This week is also expected to see continued focus on developments in the Middle East and oil prices. The Trump administration is intensifying pressure on Iran to accept ceasefire conditions. U.S. media reported that approximately 2,500 members of the 31st Marine Expeditionary Unit, part of the Okinawa-based quick-response forces, arrived in Middle Eastern waters on the 27th. In response, Iran has shown a stance of determined resistance. There are also concerns that hostilities could escalate further following the Houthi militant group’s ballistic missile strike on Israel on the 28th. Market participants remain wary of further yen depreciation, with concerns that the Japanese government and the Bank of Japan may intervene in the currency market. However, stock markets continue to remain unstable due to the Middle East situation, and any intervention could trigger sharp exchange rate fluctuations that might further destabilize equity markets. Some analysts at domestic securities firms suggest, “The intervention threshold may be around 162 yen.” On the 30th, the Bank of Japan will release the “main opinions” from the March 18–19 Monetary Policy Meeting, at which it decided to keep its policy rate unchanged. On April 1, the release of the March Short-Term Economic Outlook of Enterprises (Tankan) is also scheduled. The Bank of Japan has stated that the Middle East situation poses both upward and downward risks to Japan’s economy and prices, meaning the voices of policy board members and corporate sentiment will be closely watched as indicators for how far additional rate hikes might be. Overseas, key events include the release of U.S. March employment data on April 3. [Nikkei QUICK News (NQN), Hirofumi Hasebe]