Peace negotiations between Iran and the US appear to be progressing, but ultimately, the US is highly likely to attack Iran alongside Israel. This is because Iran’s air defense capabilities have weakened, and Russia, whose resources are tied up in the Ukraine war, cannot immediately supply the weapons needed to cover that gap. It is arguably the easiest timing to attack Iran.

If that happens, the Strait of Hormuz will be threatened, causing crude oil prices to rise. However, similar to Venezuela, they will likely aim for a short-term decisive battle. If the conflict ends quickly, crude oil prices will plummet afterward. If miscalculations lead to a prolonged war, the impact on crude oil prices will be significant. The impact on the Japanese economy, which relies on Middle Eastern crude oil, will be considerable. The yen has become easier to sell. USD/JPY ultimately failed to break below the key support level of 152 yen.

Japan and the US coordinated to push the dollar-yen rate down, but they couldn’t push it all the way down. Looking at the bigger picture, this suggests a range of 150-160 yen, with the rate eventually aiming for higher levels. Breaking above 154 yen appears to have brought back the dip-buying market.
After rebounding to around 155.35 yen, it dipped back down to near 154.50 yen, but was quickly pushed back up by dip-buying. This was supported by an improvement in initial jobless claims. Despite persistent weak employment data, both the employment report and initial jobless claims remain strong.

Japan is on a three-day weekend, making position adjustments more likely, but buying stepped in promptly at the 155 yen level. While the euro/dollar is soft, the euro’s strength is drawing attention to its potential impact on ECB policy. Bubble concerns exist, but a sharp U.S. recession seems unlikely.