Japanese Yen finds relief as Trump rules out Iran strikes before midterms

USD/JPY edges lower on Thursday as a pullback in US Treasury yields pauses the Greenback’s advance, giving the Japanese Yen (JPY) some breathing room. Traders assess fresh Middle East developments and central bank signals. At the time of writing, the pair trades around 157.71, down 0.24% on the day.

The benchmark 10-year US Treasury yield eases toward 5.23% after reaching 5.36% on Wednesday, its highest level since 2002. The retreat gathers pace as Oil prices trim part of their intraday gains following comments from US President Donald Trump that ease concerns over an immediate escalation with Iran, after earlier reports suggested Washington was preparing for possible renewed strikes.

In a Truth Social post, Trump said, “We are having productive conversations with Iran.” He added, “We won't be attacking Iran at any time before the midterms,” while reiterating that Iran would not be allowed to acquire a nuclear weapon.

In reaction, the US Dollar also gives up earlier gains. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 102.09 after reaching 102.53 earlier this week, its highest level since April 2025.

However, the scope for a deeper slide in the US Dollar and yields appears limited as Oil prices remain elevated, fuelling inflation concerns and reinforcing expectations of additional interest rate hikes by the Federal Reserve (Fed).

Fed Governor Christopher Waller said on Thursday that more rate hikes are needed, but he remains “flexible about the pace.” He added, “Inflation is too high, with AI buildout, ongoing energy shock among a range of persistent inflationary forces.”

Minutes from the Fed’s September monetary policy meeting, released on Wednesday, also indicated that most participants considered another rate increase likely appropriate by year-end. Officials remain focused on bringing inflation back to the central bank’s 2% target, although future decisions will depend on incoming data.

On the Japanese side, the Yen continues to face headwinds from the wide interest rate gap with the United States and fiscal concerns linked to Japan’s high debt-to-GDP ratio. Elevated Oil prices add further pressure by increasing import costs for the energy-dependent economy.

The Bank of Japan (BoJ) remains on a gradual tightening path. However, with other major central banks also maintaining a hawkish stance, rising Japanese interest rates offer limited relief to the Yen.

Speaking on Tuesday, BoJ Governor Kazuo Ueda said, “We're to keep raising rates in response to the economy and inflation.” However, he added that the “pace and timing of future policy adjustment will be decided based on the likelihood of our baseline projections materialising, as well as risks.”