Trump's Middle East remarks trigger global asset turmoil: Yen approaches 160 "life-or-death line," Japanese Finance Minister warns of taking "bold action"

Zhìtōng Caijing APP learned that Japan’s finance minister said that remarks by U.S. President Donald Trump earlier this week about the situation in the Middle East had a major impact on financial markets. Before the U.S. side released data, the minister expressed concern about the increasingly intensified volatility in the exchange-rate and crude oil futures markets, and issued a warning to speculators again.

On Friday, Japan’s finance minister, Kōzuki Katayama, told reporters, “Trump’s remarks have had a fairly significant impact on global markets—covering all asset classes,” and “Speculative activity in the crude oil futures and foreign-exchange markets is increasing, and volatility has therefore risen sharply.”

Katayama added, “The government is prepared to take measures across all areas.” She again issued a warning to speculators, saying that it may take “bold action”—a phrase typically seen as code for intervention in the FX market. Her reference to crude oil futures suggests that the authorities are continuing to closely monitor market developments beyond exchange rates.

Before Katayama made these remarks, the yen-to-U.S.-dollar exchange rate had reached 159.74. Earlier, Trump’s remarks pointed to the possibility that the Middle East conflict could further escalate.

On Thursday, Trump issued a new threat, saying he would target Iran’s infrastructure to force Tehran back to the negotiating table; and just one day earlier, he vowed to continue the war—a situation that has pushed up oil prices, U.S. Treasury yields, and the U.S. dollar.

Later on Friday, the yen will face another test, when the U.S. is set to release the latest batch of labor data. If the data come in stronger than expected, it could reinforce expectations that the Federal Reserve will delay rate cuts, potentially further pushing up the U.S. dollar and putting additional pressure on the yen.

After Katayama’s remarks, in early trading on Friday in the Tokyo market, the yen exchange rate fluctuated around 159.67.

Amid rapid changes in the Middle East situation, the impact of Japan’s warnings on the yen has been relatively short-lived. Just a few days after the warning from the top FX official at the Ministry of Finance helped curb the slide, the yen exchange rate has returned to a danger zone, hovering not far from the 160-to-one U.S. dollar threshold.

Since the end of 2022, Japan has spent more than 24 trillion yen (about $240k) to intervene in the market to support the yen. The latest round of operations took place in July 2024, when the yen’s depreciation fell below the 160 level. And prior to that, in April and May of the same year, Japan carried out the largest yen-support intervention on record.

UBS Group strategists expect that although officials have strengthened their intervention rhetoric, the yen’s depreciation will continue. Under a scenario of “continuous disturbance,” they even foresee the yen per U.S. dollar exchange rate reaching 175 by year-end.

Katayama said that G7 officials attending the online meeting on Monday generally believe that no matter how the situation in the Middle East develops, market volatility will remain high in the short term.

Katayama said, “Right now, the global and Japanese economic order remains intact, but it is widely recognized that the outlook is still unclear,” and “We need to take every possible measure to reduce this uncertainty as much as we can.”

(Editor: Wang Zhiqiang HF013)

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