TOKYO: Dollar Gains While Yen Declines
The dollar is on track for its biggest weekly increase since mid-June, bolstered by surging oil prices. In contrast, the yen is poised for its most significant decline in over two months, hovering at a 40-year low, despite the Japanese government’s assurances to bolster its value.
Efforts to verbally support the yen have had minimal impact. Japan’s Finance Minister Satsuki Katayama recently reiterated the government’s readiness to intervene in foreign exchange markets.
Some analysts speculate that any potential intervention from Japanese officials is likely to produce only temporary results, akin to past currency interventions, unless the Bank of Japan (BOJ) undertakes more aggressive measures, like raising interest rates.
Last Thursday, the U.S. Treasury aligned with the BOJ on the need for an interest rate increase, also cautioning against excessive currency fluctuations.
Data from the London Stock Exchange Group (LSEG) indicates that markets are fully pricing in the possibility of the BOJ raising rates at its upcoming policy meeting.
“Given the current circumstances, it’s not surprising to see the dollar appreciate against the yen,” noted Thierry Wisman, a foreign exchange and rates strategist at Macquarie Group in New York. “It’s a low-yielding currency facing significant challenges due to rising oil prices.” Wisman added, “If any currency were to attract speculation under these conditions, it would certainly be the yen.”
This situation encapsulates why the dollar-yen exchange rate has performed strongly since the onset of the Iran war and the subsequent rise in oil prices.
The conflict began on February 28th. Recently, the dollar index, measuring the greenback against a basket of currencies, rose slightly to 101.46, reflecting a weekly gain of about 0.7%—the largest in five weeks.
Although the dollar dipped 0.02% against the yen to 163.81, it still enjoyed an overall weekly increase of nearly 0.9%, marking its strongest performance against the yen since May 15.
Last Thursday, the dollar reached 163.98 yen, its highest value since November 1986.
In recent days, the dollar has strengthened following renewed attacks in the Iran war, which caused fluctuations in oil prices, triggering inflation concerns and raising speculation that the U.S. Federal Reserve may increase interest rates.
The U.S. economy appears more shielded from energy price shocks compared to Europe and Japan, which has further supported the dollar’s value.
U.S. crude oil prices fell 3.47% to $88.99 a barrel, while Brent dropped 4.12% to $96.48, retreating from a two-month peak of $102 reached last Thursday.
Expectations surrounding a potential rate hike from the Fed during this week’s meeting have climbed to 35.8%, up from 12.8% the previous week, bolstered by strong U.S. inflation data in June. This data had initially led to hopes that the Fed might delay any rate increases; however, the escalation of the conflict in Iran has once again raised concerns about price pressures.
