Yen hovers near intervention zone as traders eye Middle East risks

TOKYO - The yen hovered close to its May low versus the U.S. dollar on Wednesday, near levels that spurred Japanese currency intervention in recent weeks, as traders weighed the risks of a renewed flare-up in the Iran war.

The New Zealand dollar jumped after the Reserve Bank came unexpectedly close to raising interest rates and flagged that hikes would most likely need to increase sooner and by more than envisaged previously.

The Australian dollar flipped from gains to losses following cooler-than-expected inflation data.

The safe-haven U.S. dollar was steady after edging higher against major peers a day earlier, as U.S. strikes on Iran dented optimism for a near-term end to hostilities and a reopening of the crucial Strait of Hormuz shipping channel.

U.S. Secretary of State Marco Rubio said that negotiating a deal to halt the conflict could "take a few days."

The yen was steady at 159.29 per dollar on Wednesday, not far from the 160 level that many market participants view as a red line for intervention to support it.

Bank of Japan Governor Kazuo Ueda struck a somewhat hawkish posture on Wednesday, saying the war-driven oil shock could become persistent in an environment of high inflation expectations and rising wages.

Markets currently lay around 70% odds for a quarter-point hike at the BOJ's next policy meeting on June 15 to 16, according to LSEG data.

"While the threat of further intervention and growing bets in favour of a June hike from the Bank of Japan should be supporting the yen, Japan's high exposure to the energy crisis is keeping the currency under pressure," and Friday's Tokyo consumer price data will be closely watched, said Matthew Ryan, head of market strategy at Ebury.

"We doubt that anything will derail a June hike from the BOJ at this stage, although a soft set of figures here could ease bets for tightening beyond then."

The dollar index, which measures the currency against the yen and five other rivals, was little changed at 99.082 after adding 0.15% on Tuesday.

The euro gained slightly to $1.1642.

New Zealand's dollar jumped 0.7% to $0.5876, gaining back the ground it lost with a 0.6% drop on Tuesday.

The RBNZ kept the overnight call rate (OCR) steady in a split decision, with three members voting to raise rates by a quarter-point and three voting to stand pat. Governor Anna Breman had the ultimate deciding vote.

"On balance, the OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement," the RBNZ said in its statement.

"The Governor appears keen to wait until the RBNZ sees the 'whites in the eyes' of core inflation before responding," said Westpac New Zealand chief economist Kelly Eckhold.

"The jury remains out on whether the first OCR rise will be in July versus September."

The Aussie slipped 0.1% to $0.7159, reversing an earlier gain, after data showed the annual inflation rate cooled to 4.2% in April, compared with 4.6% in March and analysts' forecasts of 4.4%.

That followed a soft reading for jobs last week, and traders are now pricing only 20 basis points of rate hikes for the remainder of the year.

(Reporting by Kevin Buckland; Editing by Sonali Paul and Stephen Coates)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published May 27, 2026 at 1:58 AM.