Insights 
VT 
The yen has weakened, despite initially rising during Israeli action against Iran. It’s experienced a downward trajectory since then, with the USD/JPY moving beyond its previous sideways movement during the US session on Friday.
Japan, a major energy importer, faces challenges with higher oil prices negatively impacting the yen. Increased US Treasury yields are also contributing to the yen’s decline. The Bank of Japan meets today and tomorrow, with expectations to maintain interest rates.
Bank Of Japan Rate Meeting
The benchmark interest rate is anticipated to remain at 0.5%, and the BOJ is forecasted to hold rates steady until the end of the year. Additionally, there is an expectation to slow the pace of bond tapering due to market stress.
Earlier, futures movements indicated some retracement, with ES and NQ stabilising and oil prices retracting most of their initial leaps.
What we’re seeing here is a classic reaction across multiple asset classes to both geopolitical tension and macroeconomic conditions. In brief, the yen strengthened initially in response to military activity in the Middle East — typically, when uncertainty spikes abruptly, some safe-haven currencies do gain. That reaction was short-lived. Since then, the Japanese yen has resumed its broader downtrend against the US dollar, breaking out of its earlier sideways range, particularly during late-session US trading last Friday.
The root of this persistent weakness lies in a couple of very clear factors. For one, Japan’s reliance on energy imports means that rising crude oil prices push up costs domestically. That, in turn, pushes down the value of the yen, as more local currency is needed to pay for energy in dollars. Simultaneously, US bond yields have risen again — and when yields go up stateside, dollar-denominated assets often look more attractive by comparison. That simply compounds the move.
With the nation’s central bank holding a two-day meeting, expectations are fixed on inaction. The base rate is widely expected to be left unchanged at 0.5%, and there’s little appetite within the board to tighten further this year. Market participants also appear to be preparing for a slower reduction of bond purchases. Pressures in the bond market seem to be driving that thinking. The velocity of global rate adjustments has led to pockets of instability, and policymakers, always watching the smooth functioning of bond auctions, would rather not be blamed for upsetting fragile mechanics.
Market Volatility And Central Bank Stance
Futures markets had opened on edge as militarised headlines developed, but initial spikes have retraced. We’ve seen both cash indices and their respective futures rebalance — especially in ES and NQ — with a notable ease in energy-related contracts. Oil, after its earlier surge, has given up most of its gains. That tells us that markets are willing to reassess the threat level very quickly. Fear flares fast, but calmer judgement tends to return just as swiftly when tensions de-escalate or price action outpaces logic.
In recent sessions, we have acted with a measured positioning bias as fixed income and currency volatility has been the sharper influence. With the yen now breaking lower after several days of consolidation, directional conviction has strengthened. The pressure on the Bank of Japan to respond is building, but markets don’t expect adjustments anytime soon, nor are they positioning for it. Current moves are more about what’s happening in Washington than in Tokyo.
As the week progresses, rate differentials remain the anchor. With little change expected from Japan’s central bank and continued resilience from the US economy, the path of least resistance still points towards a firmer dollar. We’re watching the long end of the US Treasury curve closely, as any additional steepening could add fuel to this pair’s momentum.
Further along the curve, the moves in yields suggest money is positioning for longevity in high policy rates. That’s not helpful for asset classes priced off lower borrowing costs. The carry trade remains intact, particularly in light of steady institutional flows out of yen-dominated assets.
Equity-wise, there’s hesitation but no panic. The risk-off premium has generally faded after the initial military headlines. That reaffirms the view that, for now, the event risk is background noise rather than a reshaping of forward estimates.
With conditions lightening and commodity retracements aligning with calmer FX flows, we are watching for late-day positioning on Tuesday as Bank of Japan commentary filters through. Twin movements in bond supply and dollar strength are pointing us toward careful inventory management — adding at extremes, not chasing middle-ranges. Timing and patience remain disciplines, not optional tools.
