Key Takeaways

• Yen reverses gains: USD/JPY rose 0.4% on Friday after plunging more than 2% in the prior session on reported Tokyo intervention.
• Tokyo defends 160 line: The Japanese government stepped in after USD/JPY breached the historically sensitive 160 yen level.
• Tokyo CPI disappoints: Softer-than-expected April inflation added pressure on the yen, with utility and food subsidies keeping price pressures contained.
• BOJ hawkish stance ignored: The yen weakened despite the Bank of Japan hiking inflation forecasts and signaling further rate increases.
• Dollar steadies: The DXY ticked up slightly after losing nearly 2% in April amid fluctuating safe-haven flows.
• Iran tensions persist: Hormuz remains shuttered, the U.S. naval blockade stays in place, and Trump is reportedly weighing fresh military action.
• Fed rate cut bets fade: Growing opposition within the Fed to its easing bias has further trimmed expectations for 2026 rate cuts.
• Asian FX muted: AUD/USD fell 0.1%, USD/KRW held flat as bumper Korean exports cushioned the won, and USD/INR hovered just below record highs.

The Japanese yen weakened on Friday after rallying sharply in the previous session on reported currency market intervention by Tokyo, while the dollar steadied from steep losses logged throughout April.

Broader Asian currencies traded within tight ranges, with local trading volumes largely subdued by market holidays across most regional jurisdictions.

Regional markets remained on edge over the Middle East conflict, as the standoff between the United States and Iran showed little sign of easing. Flows through the Strait of Hormuz also remained scant, while Washington kept its naval blockade against Iran firmly in place.

Yen Soft After Reported Intervention; Tokyo CPI Misses Expectations

The Japanese yen’s USD/JPY pair rose 0.4% on Friday, reversing course after tumbling more than 2% in the previous session.

The drop was largely attributed to government intervention, with Tokyo seen stepping into currency markets after USD/JPY crossed the 160 yen threshold earlier this week. The level has historically prompted official action.

On Friday, the yen came under renewed pressure from softer-than-expected Tokyo consumer price index inflation for April. The reading typically foreshadows a similar trend in national inflation and showed that government subsidies on utilities and food are keeping price pressures contained.

Yen weakness materialized even as the Bank of Japan struck a notably hawkish chord earlier in the week, with the central bank lifting its inflation forecasts and warning of further rate hikes in the coming months.

Dollar Steady After April Losses; Asia FX Muted

The dollar index and dollar index futures edged slightly higher in Asian trade on Friday, after surrendering nearly 2% in April.

The greenback had come under pressure from a temporary easing of safe-haven demand, as markets initially held hope for a swift conclusion to the U.S.-Iran war. However, safe-haven demand for the dollar picked up again toward the end of the month, amid mounting signs of a prolonged Middle East conflict.

On Thursday, the dollar was weighed down by the Japanese government’s intervention to prop up the yen.

But the outlook for the greenback turned brighter as attempts to broker talks between Washington and Tehran fell flat. President Donald Trump was also reportedly weighing fresh military action against Iran.

In addition, a Federal Reserve meeting earlier this week revealed a growing number of policymakers pushing back against the Fed’s easing bias, particularly in the face of inflationary pressures from a prolonged Iran war. The dynamic prompted a further unwinding of bets on any rate cuts by the central bank this year.

Asian currencies came under pressure from this shift. The Australian dollar’s AUD/USD pair — a key barometer of regional risk appetite — slipped 0.1%.

The South Korean won’s USD/KRW pair was flat, with weakness in the currency offset by data showing a bumper jump in exports in April. South Korea’s chip sector has been a major beneficiary of outsized demand from the artificial intelligence industry.

The Chinese yuan’s USD/CNH offshore pair was flat, while the Indian rupee’s USD/INR hovered just below the record highs above 95 rupees hit earlier this week.