The Japanese yen declined in Asian trading on Friday against a basket of major and minor currencies, resuming losses that were temporarily halted yesterday against the US dollar and moving back toward its lowest level in four weeks. The currency is also on track to post a monthly loss in May, weighed down by higher US Treasury yields.

The yen’s decline comes alongside a renewed rise in the US dollar as markets await final approval from US President Donald Trump for the preliminary peace agreement between Washington and Tehran. The Japanese currency is also facing additional pressure after data showed a slowdown in Tokyo’s core inflation during May.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.1% to ¥159.36, from today’s opening level at ¥159.23, and recorded a low of ¥159.16.

• The yen ended Thursday’s trading up around 0.2% against the dollar, its first gain in the past three sessions, after earlier touching a four-week low of ¥159.65.

• Aside from buying activity from lower levels, the yen benefited from reports of a preliminary peace agreement between the United States and Iran.

Monthly performance

• During May trading, which officially concludes with today’s settlement, the Japanese yen is currently down about 1.8% against the US dollar, on track for its third monthly loss in the past four months.

• The monthly decline reflects investor preference for the US dollar as a safer alternative investment amid the fallout from the Iranian war and continued tensions between the United States and Iran.

• It also comes as the yield on the 10-year US Treasury note has risen to its highest level in a year due to mounting inflationary pressures on the Federal Reserve.

US dollar

The dollar index rose 0.1% on Friday, resuming gains that paused in the previous session and moving toward a seven-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The rise comes as demand for the US dollar as a safe haven returns amid continued uncertainty surrounding the preliminary peace agreement between the United States and Iran, which is still awaiting final approval from President Donald Trump.

Latest developments in the Iranian war

• The United States and Iran have reached an agreement, but it still requires Trump’s final approval.

• The agreement includes a 60-day ceasefire, the lifting of restrictions on navigation through the Strait of Hormuz, and further nuclear negotiations.

• US President Donald Trump requested a few days to consider the final agreement.

• Iran’s state news agency said the agreement has not yet been finalized.

• The United States warned Oman against becoming involved in Strait of Hormuz transit fees.

Tokyo core inflation

Data released in Japan today showed Tokyo’s core consumer price index rose 1.3% in May, the slowest pace since March 2022, below market expectations of 1.5% and down from 1.5% in April.

Weaker-than-expected inflation readings in Japan indicate easing price pressures on Bank of Japan policymakers, reducing the likelihood of additional Japanese interest rate hikes this year.

Japanese interest rates

• Following the data release, market pricing for a quarter-point interest rate hike by the Bank of Japan at its June meeting declined from 65% to 60%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan in order to reassess those expectations.

The ¥160 threshold

Japanese authorities are closely monitoring movements in the local currency, particularly as the yen weakens toward the critical ¥160 per dollar level, which has long been viewed as a threshold that could trigger renewed intervention in the foreign exchange market.

Reuters sources previously reported that Tokyo intervened several times in late April and early May to halt the yen’s decline, although the currency’s recovery proved short-lived. At the time, the exchange rate reached ¥159.25 per dollar, its weakest level since April 30.

Outlook for the Japanese yen

• Tony Sycamore, market analyst at IG, said previous intervention by the Bank of Japan provided policymakers with some relief, but questions remain regarding its long-term effectiveness.

• Sycamore added: “The key question is whether that intervention was worthwhile for what was essentially only a temporary one-month reprieve. Moreover, will authorities have the capacity to provide similar support if the ¥160 level is breached again in coming sessions?”

The Canadian dollar rose sharply against its US counterpart on Thursday, recovering from a six-week low as optimism grew over the possibility of reaching an agreement to extend the ceasefire in the Middle East, boosting investor risk appetite.

The Canadian dollar, known as the “loonie,” climbed 0.4% to C$1.3780 against the US dollar, equivalent to 72.57 US cents, heading for its biggest daily gain since April 30.

Earlier in the session, the Canadian currency had touched its weakest level since April 13 at C$1.3869 per US dollar.

The moves came after reports said the United States and Iran had reached an agreement to extend the ceasefire, pending approval from US President Donald Trump, following Iran’s targeting of a US base in Kuwait in response to American strikes against what Washington described as Iranian drone operations.

Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull, said markets had returned to believing a deal was possible, adding: “There’s risk appetite everywhere, including in the Canadian dollar.”

US stocks rose, while the US dollar weakened against a basket of major currencies.

US West Texas Intermediate crude prices also rose 0.4% to $89.06 per barrel, supporting the Canadian dollar since oil is one of Canada’s key exports.

In economic data, figures showed Canada’s current account deficit widened to C$7.18 billion in the first quarter, compared with a revised deficit of C$1 billion in the fourth quarter of last year.

Economists expect first-quarter GDP data, due Friday, to show the Canadian economy expanded at an annualized rate of 1.5%.

In a separate development, formal negotiations began between the United States and Mexico to rewrite the United States-Mexico-Canada trade agreement, amid US demands to tighten regional rules of origin, while Canada was excluded from the current round of talks.

Canadian Prime Minister Mark Carney called for a “new partnership” with the United States “to help make America great again” during a speech in New York.

In bond markets, Canadian government bond yields declined across maturities, with the 10-year yield falling 2.1 basis points to 3.444% after earlier touching its highest level in around a week at 3.499%.

Oil prices turned lower on Thursday, giving up earlier gains, after reports said negotiators from the United States and Iran had reached a preliminary agreement to extend the ceasefire and begin talks on Iran’s nuclear program.

Brent crude, the global benchmark, fell by 58 cents to close at $93.71 per barrel, while US West Texas Intermediate crude edged up by 22 cents to $88.90 per barrel.

According to US sources speaking to CNBC, negotiators reached a 60-day memorandum of understanding aimed at extending the truce and opening negotiations over Iran’s nuclear file, although US President Donald Trump has not yet given final approval.

Prices had risen earlier in the session following an exchange of military strikes between the United States and Iran, after Iran’s Revolutionary Guard announced it had targeted a US base early Thursday without disclosing its location.

Meanwhile, US Central Command said Iran launched ballistic missiles toward Kuwait, which were successfully intercepted.

Those developments came after US forces carried out new strikes inside Iran targeting a military site that Washington said posed a threat to American forces and commercial shipping through the Strait of Hormuz, while several Iranian drones were also intercepted and shot down.

Oil prices have fallen more than 10% since May 18, when Trump announced he had halted an imminent military strike against Iran to allow more time for negotiations.

US Secretary of State Marco Rubio said on Wednesday that talks with Iran had made some progress, stressing that Trump prefers a diplomatic solution and would give negotiations “every possible chance to succeed.”

Since a fragile truce was reached in April, Washington and Tehran have remained deadlocked over the future of navigation through the Strait of Hormuz.

Iranian state television reported on Wednesday that Tehran had agreed, under a draft memorandum of understanding with the United States, to restore commercial shipping traffic through the Strait of Hormuz to pre-war levels, with joint management of the waterway between Iran and the Sultanate of Oman. However, the White House described those reports as “completely fabricated.”

Trump later stressed that “no country will control navigation through the strait.”

In the same context, Amos Hochstein, former energy adviser in the administration of former US President Joe Biden, said Middle Eastern leaders now believe Iran already exercises de facto control over the Strait of Hormuz regardless of any formal agreement.

He added: “No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future.”

Citigroup said in a research note that oil markets have begun stabilizing as fears of a complete supply disruption scenario ease amid signs that Washington and Tehran may be moving closer toward a possible agreement.

However, the bank also warned that persistently higher oil prices could increase global inflationary pressures, potentially pushing central banks toward more hawkish monetary policies to combat inflation driven by rising energy prices.

Two weeks ago, US President Donald Trump visited the Chinese capital Beijing for a high-level summit with Chinese President Xi Jinping aimed at easing trade tensions between the two countries, securing new business deals, and leveraging Chinese diplomatic influence to help manage the conflict with Iran.

Trump was accompanied by a delegation of top US chief executives in an effort to push China to open its markets to American technology companies, and he succeeded in securing several multi-billion-dollar agreements.

The summit resulted in a limited tactical easing and a relative improvement in diplomatic relations between the two rival powers, with the White House stating that Xi Jinping still opposes the militarization of the Strait of Hormuz.

However, Trump’s visit saw a clear failure, as the talks in Beijing did not produce a formal agreement or long-term trade truce regarding China easing restrictions on rare earth exports.

According to an opinion article published this week by the US military newspaper Stars and Stripes, China “can paralyze the US drone fleet with a single phone call.”

Last November, Beijing confirmed that the broad restrictions it had previously imposed on rare earth exports remain in place, including a complete ban on rare earth extraction and separation technologies, in addition to quantitative restrictions on certain critical minerals such as tungsten, bismuth, and antimony, as well as medium and heavy rare earth elements.

China had temporarily suspended a second wave of restrictions that required export licenses for foreign entities and products containing small amounts of Chinese rare earth materials in October 2025, but only for one year.

An analysis by BMI Research, a Fitch Group unit, showed that Xi Jinping’s team merely promised to address US supply shortage concerns without offering structural extensions or concrete policy adjustments during the latest meeting.

Heavy rare earth exports remain restricted

Despite the temporary easing period, China’s exports of critical heavy rare earths remain sharply lower, with dysprosium exports currently standing at only 41% of pre-restriction levels, while terbium exports are at 49% and yttrium exports at 42%.

Yttrium prices have surged around fifteenfold due to the severe shortage caused by Chinese restrictions, creating widespread disruptions in US aerospace and semiconductor industries, where the mineral is used as a critical thermal protection and insulation layer.

China supplies around 70% of US yttrium needs, in addition to 100% of its terbium, holmium, and lutetium requirements.

Washington races to build domestic alternatives

China’s near-monopoly influence over the rare earth sector has pushed the United States and its Western allies to urgently search for alternative sources.

Last July, the US Department of Defense agreed to purchase $400 million in preferred shares of MP Materials, making the Pentagon the company’s largest shareholder with a stake of around 15%.

The agreement includes a ten-year purchase contract with guaranteed minimum pricing, ensuring the company’s production is directed toward defense and commercial customers within the United States in order to strengthen the independence of domestic supply chains.

The company is using this funding, along with $1 billion in commercial debt financing provided by JPMorgan Chase and Goldman Sachs, to build a massive rare earth magnet manufacturing complex in Texas.

During the same period, USA Rare Earth signed a non-binding letter of intent with the US Department of Commerce to obtain $1.6 billion in government funding under the CHIPS and Science Act program.

The funding package includes a guaranteed loan worth $1.3 billion in addition to $277 million in federal funding, in exchange for the US government receiving a 10% equity stake along with additional options to purchase future shares.

The investment aims to accelerate mining, processing, and refining operations for heavy rare earth elements at the Round Top project in Texas, with commercial production expected to begin by 2028.

ReElement Technologies is also seeking to strengthen its position within the emerging Western rare earth supply chain through agreements related to heavy mineral processing and alloy production in North America.

The company signed long-term supply agreements with Canada’s Saskatchewan Research Council to provide neodymium-praseodymium, dysprosium, and terbium, in addition to developing metal and alloy production facilities for defense applications in Ohio.

It also signed agreements to source raw materials from projects in Greenland and the US state of Montana as part of an integrated strategy targeting US defense and industrial markets.

Europe moves to reduce dependence on China

In Europe, the European Union is seeking to overcome Chinese dominance over rare earths through the Critical Raw Materials Act, which places limits on dependence on any single country within supply chains.

The EU is investing heavily in extraction, processing, and recycling operations within Europe, while also launching a list of strategic projects and signing partnerships with resource-rich Western allied nations.

The European Commission is also implementing coordinated defense strategies through initiatives such as the “Resource EU Plan,” backed by funding of up to €3 billion, aimed at coordinating demand, conducting supply chain stress tests, and carrying out joint purchases of critical minerals among member states.

European law also requires that at least 25% of the EU’s strategic raw materials come from recycling by 2030.

At the same time, European automotive and technology companies are developing products that do not rely on rare earth materials, including a shift toward motors that do not use permanent neodymium-based magnets, such as induction motors and synchronous reluctance motors, particularly in electric vehicles.