[Exchange] The reason why the "Middle East emergency" led to yen selling | Yoshida Tsune's Currency Daily | Moneyクリ Monex Securities Investment Information and Media Useful for Money

Different reactions of the two "safe assets" = Swiss Franc is a buy

On June 13, Israel bombed Iran, raising concerns about military conflict between the two countries, which led to an increase in the USD/JPY exchange rate. Then on the 22nd, when the United States announced military intervention, the USD reached as high as 148 yen temporarily (see Chart 1). Thus, the reaction of the foreign exchange market to this "Middle East crisis" was to buy USD and sell yen, but why was that?

[Figure 1] USD/JPY Daily Chart (April 2025 - ) Source: Manex Trader FX In times of crisis, when there is a risk-off scenario leading to a sharp decline in stock prices, currencies such as the yen and Swiss franc have often been favored as "safe assets." This time, however, U.S. stocks did not necessarily experience a sharp decline, making it somewhat ambiguous whether it could be considered a risk-off scenario. Nevertheless, while the Swiss franc was bought, the yen was sold as mentioned above. Why did the reactions of these two representative "safe assets" differ?

The Contrasting Positions of the Yen and the Swiss Franc

The significant difference between the yen and the Swiss franc lies in their positions against the US dollar. While the yen has unprecedented large long positions, the Swiss franc has short positions (see charts 2 and 3). In that sense, the selling of yen and buying of Swiss francs after the "Middle East crisis" can also be viewed as a position adjustment.

[Figure 2] CFTC statistics on speculative yen positions (2005 onwards) Source: Created by Monex Securities from Refinitiv data

[Figure 3] CFTC Statistics on Speculative Positions in Swiss Franc (2015 onwards) Source: Created by Monex Securities from Refinitiv data. The commonality between the yen and the Swiss franc is that they are low-interest currencies. For this reason, there have often been cases where they are in a short position from the perspective of interest rate differentials. Risk is associated with taking excessive positions, and for this reason, risk-off often leads to corrections of such excessive positions.

Considering the above, it may have been the case that the preference for the yen and Swiss franc during risk-off scenarios was largely due to the ease of buying back after the adjustment of short positions. However, the recent situation with the yen has been unusual, showing a significant net buying position. Therefore, when there was an excessive position adjustment during risk-off, it might have resulted in a reaction of selling the yen.

The US dollar bought due to the risk of crude oil supply disruptions = the currency of the world's largest oil producer

In this current "Middle East crisis" situation, the correlation between the US dollar/yen and oil prices has been noticeable (see Chart 4). This likely indicates that in Japan, which has a high dependence on oil imports, the surge in oil prices led to a reassessment of excessive yen buying positions, resulting in yen selling.

[Figure 4] USD/JPY and WTI (May 2025 - ) Source: Created by Monex Securities from Refinitiv data Furthermore, it is believed that the recent surge in crude oil prices was largely a reaction to the risk of crude oil supply being disrupted due to Iran's blockade of the Strait of Hormuz. The United States, which has become the world's largest oil producer with the advent of shale oil, is likely in a strong position regarding this crude oil supply disruption risk. In that sense, the U.S. dollar, which is the currency of the "world's largest oil producer," was bought, resulting in the selling of the yen.

When the yen is sold off due to "Middle East unrest," it is no longer favored as a "safe asset" even in risk-off scenarios, and some have suggested that this may be a consequence of Japan's economic decline, but perhaps it is not that simple.