Yen Extends Fall on Surging Oil Prices

The Japanese yen traded around 159.4 per dollar on Friday, hovering near its weakest levels since July 2024, raising concerns of possible intervention by authorities. Finance Minister Satsuki Katayama said they are preapred to take all necessary steps in currency markets amid surging oil prices. Bank of Japan Governor Kazuo Ueda also warned that a weak yen could intensify imported inflation amid rising oil prices, potentially prompting the central bank to accelerate policy normalization. Ueda added that exchange rates now have a larger impact on inflation than in the past, giving them greater weight in policy decisions. Oil prices surged after Iran’s new supreme leader, Mojtaba Khamenei, pledged to keep the Strait of Hormuz effectively closed while Tehran increased attacks on regional oil and transport facilities. The Middle East conflict showed no signs of easing, with defiant rhetoric from Tehran and Washington signaling that the Iran war remains far from de-escalation.

The Japanese yen depreciated to around 159 per dollar on Thursday, sliding toward its weakest level in a year and a half as oil prices continued their ascent, pressuring the country’s oil-importing economy. Oil rallied for a second day as the prospect of a protracted Iran war overshadowed a coordinated release of oil reserves by major economies, with the IEA approving its largest-ever release of 400 million barrels. That includes 172 million barrels from the US, while Japan will release 80 million barrels from its reserves. Japan remains highly exposed to oil supply shocks due to its heavy reliance on Middle Eastern imports. Meanwhile, traders stayed alert for possible intervention by Japanese authorities as the yen approached its lowest levels since July 2024, when Tokyo stepped in to support the currency.

The Japanese yen depreciated past 158 per dollar on Wednesday, remaining under pressure as heightened uncertainty over the Middle East conflict continued to support the dollar. The Trump administration sent mixed signals on the Iran war, with President Donald Trump saying the conflict could end soon, while senior officials indicated that military operations were intensifying and that diplomatic talks remained unlikely. Iran’s Revolutionary Guards dismissed Trump’s claims, warning that the blockade would continue until US and Israeli attacks cease. Meanwhile, oil prices declined further after reports that the IEA proposed the largest release of oil reserves in its history to help calm markets. Japan is highly vulnerable to oil shocks given its reliance on energy imports, but the country stands ready to tap its emergency reserves to offset supply risks. Meanwhile, data showed that producer prices in Japan rose 2% in February, marking the softest increase in nearly two years.