Japan is closely watching foreign exchange moves and will take "all necessary steps," Finance Minister Shunichi Suzuki said Monday, as the yen fell to a fresh 34-year low versus the U.S. dollar.

The yen, which has been on a downward trend, dropped to around 153.70 in Tokyo, a level unseen since 1990, though caution is persisting over possible market intervention by Japanese authorities to slow the currency's decline.

The wide interest rate differential between Japan and the United States has been blamed for the yen's fall. A spike in tensions in the Middle East following Iran's retaliatory attack on Israel over the weekend added another source of uncertainty in financial markets.

"We are closely monitoring developments and will take all necessary steps," Suzuki told reporters at the Finance Ministry.

The yen has already weakened past levels where Japan previously intervened in 2022 to arrest its rapid decline.

The yen remains under pressure despite the Bank of Japan's first interest rate hike in 17 years in March, as the central bank has grown more confident about the likelihood of attaining its 2 percent inflation target amid recent wage hikes.

A weak yen lifts import costs for a variety of items from energy and raw materials to food for resource-scarce Japan, leading to higher inflation at home.

The Middle East conflict has sent crude oil prices higher and weighed on stock markets. It also helped boost the appeal of the dollar as a safe-haven asset.

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