Yen Strengthens Amid Middle-East Tensions as Safe-Haven Demand Rises

The yen strengthened on Monday due to heightened Middle-East tensions, reviving safe-haven demand for the Japanese currency. The turmoil follows a deadly rocket strike in Israeli-occupied Golan Heights, blamed on Hezbollah. Markets reflected fragile investor sentiment and speculations around interest rate decisions by the Bank of Japan and the Federal Reserve.

The yen showed significant strength on Monday, overturning earlier losses, as escalating tensions in the Middle East renewed safe-haven appeal for the Japanese currency. The conflict in question involves Israel's considerations for a response to a deadly rocket strike in Israeli-occupied Golan Heights, which has been attributed to the Lebanese armed group Hezbollah by both Israel and the United States.

The market's reaction highlights the delicate state of investor sentiment, especially after last week's sharp tech share sell-off that propelled the yen to a 12-week high against the dollar on Thursday. The dollar dropped by 0.17% to 153.51 yen, having initially decreased by as much as 0.35%. On the same day, the yen had risen by as much as 0.36%, bolstered by a global equity market rally extending into Monday in Asia, with Japan's Nikkei stock average climbing over 2%.

In related developments, the U.S. earnings calendar features major companies like Amazon, Apple, Meta, and Microsoft this week. Additionally, currency traders are anticipating crucial policy decisions from the Bank of Japan and the Federal Reserve on Wednesday, followed by the Bank of England on Thursday. Speculation is rife that the BOJ will hike interest rates and significantly reduce its monthly bond purchases, while the Fed is expected to maintain current rates until a potential cut in September.

(With inputs from agencies.)