The yen has weakened after initially rising due to Israeli military actions against Iran. Since then, it has followed a downward path, with the USD/JPY moving past its previous stable range during Friday’s US session. Japan, a significant energy importer, struggles with rising oil prices, which hurt the yen’s value. Higher US Treasury yields also contribute to this decline. The Bank of Japan (BOJ) is meeting today and tomorrow, and it is expected to keep interest rates unchanged. The benchmark interest rate is likely to stay at 0.5%, and the BOJ is predicted to maintain rates until year-end. There is also an expected slowdown in bond tapering because of market stress. Earlier, futures showed some retracement as ES and NQ stabilized, and oil prices fell from their earlier highs. We see a typical market reaction to geopolitical tensions and economic conditions. The yen initially strengthened due to the military situation in the Middle East; usually, safe-haven currencies gain when uncertainty rises, but this reaction was short-lived. Since then, the yen has returned to its downward trend against the US dollar, breaking out of its earlier stability during the late-session US trading on Friday. The ongoing weakness in the yen is due to clear reasons. Japan’s dependence on energy imports means that rising oil prices increase domestic costs, which lowers the yen’s value, as more yen is needed to pay for energy in dollars. At the same time, rising US bond yields make dollar-denominated assets more appealing, adding to the yen’s decline. As the central bank meets for two days, the expectation is to take no action. The base rate is expected to remain at 0.5%, and there is little interest in tightening this year. Market participants appear to be ready for a slower pace of bond purchases due to pressure in the bond market. With global rate adjustments causing instability, policymakers are cautious not to disrupt fragile market conditions. Futures markets opened cautiously amid military headlines, but initial spikes have receded. Cash indices and their futures, especially in ES and NQ, have stabilized, while energy contracts have softened. After a surge, oil has given back most of its gains. This indicates that markets quickly reassess threats. Fear can spike rapidly, but calm judgment often returns just as quickly when tensions ease. Recently, we have taken a cautious approach as volatility in fixed income and currency has been a significant factor. With the yen breaking lower after a period of consolidation, there is stronger directional conviction. Pressure is building on the BOJ to act, but markets do not expect changes soon. Current trends are more influenced by events in Washington than in Tokyo. As the week continues, interest rate differences remain crucial. With no significant changes expected from the BOJ and continued strength from the US economy, the trend still favors a stronger dollar. We are closely monitoring the long end of the US Treasury curve, as any steepening could boost momentum for this currency pair. Looking further into the curve, recent yield movements suggest that money is positioning for long-term high policy rates. This is not beneficial for asset classes that depend on lower borrowing costs. The carry trade remains strong, especially as institutional flows continue out of yen-based assets. In equity markets, there is some hesitation but no panic. The risk-off premium has generally faded since the initial military news, suggesting that this risk is now background noise rather than a major factor affecting future estimates. As market conditions improve and commodity prices realign with calmer FX flows, we are prepared for late-day positioning on Tuesday as BOJ comments come through. The interactions between bond supply and dollar strength indicate a need for careful inventory management—adding at extremes rather than chasing average ranges. Timing and patience are essential practices, not optional tools.

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