The foreign exchange market on March 4, 2026 witnessed dramatic mixed developments. According to data from Investing, the USD/JPY exchange rate pair (Yen for 1 US dollar) decreased by about 0.2%, reflecting a slight recovery of the Yen after tough statements from Japanese officials.
However, this currency is still near its 5-week low due to pressure from the strengthening of the USD (the Dollar Index increased by 0.6%) and Brent oil prices soaring by 14% since the end of last week.
According to Reuters, at a hearing before Parliament, BOJ Governor Kazuo Ueda affirmed that the central bank will continue its interest rate hike roadmap if economic forecasts are guaranteed. After raising interest rates to 0.75% in December 2024, BOJ is closely monitoring the impact of the weakening Yen on inflation.
Mr. Ueda warned that rising oil prices due to the Iranian conflict could push household inflation expectations higher, forcing the BOJ to take more drastic actions to sustainably achieve the 2% inflation target.
The consequences of the conflict in the Middle East are creating a difficult problem for the Japanese economy, which depends on fuel imports. The weak Yen increases import costs, forcing businesses to shift the burden to consumers.
However, the excessive volatility of the global market may force the BOJ to postpone the next interest rate hike in March to further assess geopolitical risks.
Under this pressure, Finance Minister Satsuki Katayama declared that the Government is ready to intervene decisively in the foreign exchange market if necessary. The coordination between BOJ's monetary policy and the Government's intervention action will be a key factor determining whether the Yen can escape the current dangerous zone or not.
