Japanese Yen hangs near multi-week low vs USD amid economic risks due to Mideast tensions

The USD/JPY pair kicks off the new week on a positive note and climbs back closer to the 159.50 level during the Asian session, eyeing a four-week top set last Thursday amid a combination of factors.

Data released earlier today showed that Japan's corporate Capital Spending flatlined in the first quarter, falling short of market expectations and marking a sharp deceleration from the 6.5% YoY rise seen in the final quarter of 2025. This comes on top of economic concerns stemming from the Middle East conflict and the continued energy supply disruption through the Strait of Hormuz, which, in turn, is seen undermining the Japanese Yen (JPY). Apart from this, a goodish pickup in the US Dollar (USD) demand turns out to be another factor supporting the USD/JPY pair.

Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, assist the safe-haven USD Index (DXY), which tracks the Greenback against a basket of currencies, to recover further from a two-week low, touched on Friday. The Israel Defense Forces (IDF) expanded its ground offensive in Lebanon, while Israel's Prime ​Minister Benjamin Netanyahu said that he has ordered troops to move further into Lebanon in the battle against the Iranian-backed Hezbollah. This comes on top of the US-Iran standoff over key issues and keeps geopolitical risks in play.

In fact, Iranian officials said a deal has not yet been finalized and that proposals are still being exchanged through Pakistani and other regional mediators. The main sticking points include Iran's nuclear program and the critical Strait of Hormuz. This keeps geopolitical risk premium in play and benefits the USD's reserve currency status. Moreover, a modest recovery in Crude Oil prices, from over a one-month low set on Friday, revives inflationary concerns and reaffirms hawkish US Federal Reserve (Fed) expectations. The outlook lends additional support to the buck and the USD/JPY pair.

However, speculations that Japanese authorities will step in again to prop up the domestic currency might hold back the JPY bears from placing aggressive bets and cap further upside for the currency pair. Traders now look forward to this week's important US macro releases scheduled at the start of a new month, starting with the ISM Manufacturing PMI later today, for some meaningful impetus. The aforementioned fundamental backdrop, meanwhile, seems tilted in favor of the USD/JPY bulls, though intervention fears warrant caution before positioning for any further appreciating move.