The year 2016 started with a stronger yen, traded at two-month high versus dollar and escalating tension between Saudi and Iran.

According to Bloomberg, yen held its biggest monthly gain versus the dollar since January 2014, traded at 120.26 per dollar as of 8:46 a.m. in Tokyo, after reaching 120.04 earlier. It touched 120.01 on Dec. 31, the highest since Oct. 22, rising 2.4 percent over the month.

Chief Currency Strategist at Mizuho Securities, Kenzo Suzuki told Bloomberg, "The mood for dollar-yen is not very good," he said in Tokyo. "The Saudi situation is, geopolitically, not good news."

Nikkei reported that on Monday, The U.S. dollar traded in the lower 120 yen range in Tokyo, little changed from its level on Thursday in New York, on the last trading day of 2015. Closing the 2015, U.S. currency briefly dropped to 120.01 yen, a two-month low.

The dollar-yen fluctuation also affected Japanese stock market on Friday morning after Christmas holiday. According to Reuters, Nikkei was flat at 18,783.05 in midmorning trade after moving in and out of the black. Nikkei has fallen 1.1 percent and was poised for a fourth weekly losses.

Yutaka Miori, a senior technical analyst at Mizuho Securities said, "The mood pretty much relies on the dollar-yen levels today."

In Tokyo stock market, exporters and financials lost ground, as Toyota Motor Corp and Honda Motor Co each fell 0.5 percent and Panasonic Corp dropped 0.6 percent. In the financial sector, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group each declined 1.3 percent.

The latest news on delayed delivery of Mitsubishi regional jet from Mitsubishi Aircraft Corp have affected the parrent company, Mitsubishi Heavy Industries. The company's share tumbled to 3.8 percent following the announcement on Thursday.

The strong yen was preceded by a heated tension in Middle East, after Saudi cuts diplomatic ties with Iran after the execution of a Shiite cleric by Saudi government. Protesters stormed the Saudi Embassy in Tehran following the execution of Nemer al-Nemer, a prominent Shiite cleric in the mass execution of 47 prisoners on Saturday. The cleric was known as an outspoken opponent of the kingdom's ruling Al Saudi family in Saudi Arabia.

On Saturday, protesters threw molotov cocktail at Tehran's Saudi Arabian embassy. While in Iran's second-largest city, Mashdad, Saudi consulate were also stormed with protesters. According to CNBC, protests were held in Shiite supporters in cities from Karachi, Istanbul, Beirut, Bahrain, Tehran, and Baghdad.

Both Saudi Arabia and Iran are one of the largest oil producers in the world, where Saudi Arabia is the number one producer, and Iran as the fifth largerst oil producer. The heated tension between these two countries will greatly affect oil trade. Followed by strong Japanese yen against U.S. dollar, such events have put more pressure on the world's economy.