How Israel-Iran Tensions Could Influence the USD/JPY Exchange Rate in 2025
Introduction
For the global Forex market, the USD/JPY currency pair is often referred to as a “safe haven” update. During moments of geopolitical angst, traders are not just looking at economic data- investors are looking for anything.
One aspect of geopolitical angst is the Middle East, with potential volatility – specifically the ongoing altercation-combat conflicts between Israel and Iran.
Specifically, this article will provide a perspective on how the conflict may play out and ultimately begin to impact the USD/JPY positively or negatively in 2025 based on fundamental and technical analysis.
- What is the relationship between Geopolitical tensions and USD/JPY?
The Yen has built its reputation as a “safe-haven” currency. The designation means that if global risk increases whether it is from war, a decline in economic growth or political pressure on nations, investors will usually sell off risk on assets and typically buy the Yen.
The US Dollar is a reserve currency that many consider similar to a safe haven.
When geopolitical tension occurs such as the conflict in Israel and Iran:
JPY will likely appreciate based on global risk-off.
The USD can either appreciate or depreciate based on how US investors think or perceive the USA has exposure to the crisis.
- The Israel-Iran conflict is a geopolitical flashpoint.
Tensions between Israel and Iran have developed for many years and there are several key flashpoints to watch:
Iran’s nuclear ambitions, include the perception by Israel of a direct threat.
Proxy conflicts in Syria.
- Implications for USD/JPY from a Fundamental Lens
a) Risk Sentiment
An armed conflict could produce the following results:
- The yen would rise. Traders will enter and exit positions to dollar during global crisis because they want to be long the currency that is perceived to have greater safety of value – yen.
- The dollar could rise or fall depending on how much the US gets involved militarily, in conjunction with the other countries actions.
b) Oil Prices
Japan imports nearly all its oil from other countries. If there is a conflict in the Middle East, then oil prices are likely to rise in general for all of the globe.
Thus Japan’s trade balance could deteriorate and the yen might depreciate as the currency would have seen a reduced ability to compete internationally with regard to its trade balance.
If the global market’ s reaction is panic, then JPY could still appreciate as a ‘safe haven’ for the short term instead of a currency that can provide a measure of stability according to exchanged money.
c) US Fed and BOJ’s Response
- The Federal Reserve could delay announcing the next interest rate hike or even do nothing if there are uncertain situation revolving a potential military conflict.
- The BOJ could decide to intervene in the market regarding the JPY if the activities related to the military conflict involving Japan led to an extreme appreciation of the JPY that is ruining Japan’s exports.
- Technical Analysis Perspective of USD/JPY in Military Conflict Situations
Assuming that the escalation of hostilities in Israel-Iran occurs in mid-2025, the historical trend has played out:
- USD/JPY will collapse or sharply fall during global crisis events (example: stock market collapse from COVID or Ukraine war).
- Both the previous key support zone of 130.00 price level and new resistance zone of 145.00 price level may be active depending on what actually happens with the news for USD/JPY.
- Based on these price levels, traders are going to use extensions for Fibonacci retracement in their positioning as the news spike comes into play, but also likely forget about the potential for the new trends, including divergence in RSI which could be gained on to.
Trading Strategy Tips
If the conflict worsens:
Consider shorting USD/JPY if the geopolitical development escalates and confirmed.
Drop tight stop losses; volatility will be on the rise.
Watch for spikes/flows into safe-havens or shocks to commodity prices.
If peace talks happen or lobbying for a ceasefire:
USD/JPY may look to bounce as the risk appetite returns.
Conclusion
The USD/JPY currency pair is one of the most sensitive currency pairs to global events and a conflict between Israel and Iran in 2025 would have volatility written all over it.
Traders cannot take geopolitical news without accounting for technical indicators and fundamental analysis.
Traders have to keep up to date on all developments and ensure they are managing their risk appropriately when trading very reactive pairs in inconsistent times.
