Yen Strengthens as Oil and Dollar Weaken

The Japanese yen appreciated past 159 per dollar on Monday, rebounding from three-week lows as declining oil prices and a softer US dollar supported the currency amid signs that the US and Iran were moving closer to a deal that could reopen the Strait of Hormuz. A full reopening of the key shipping route would offer relief to major Asian economies heavily reliant on Middle Eastern oil imports. Meanwhile, data released last week showed Japan’s core inflation rate slowed to a four-year low in April, reducing pressure on the Bank of Japan to tighten monetary policy in the near term. Even so, the central bank could still consider raising rates as Japan’s economy continues to show resilience. Separately, traders remained cautious about the possibility of currency intervention, with the yen still trading near the 160-per-dollar level that reportedly prompted Tokyo’s intervention efforts in late April and early May.

The Japanese yen slipped past 159 per dollar on Friday and was on track for a second consecutive weekly decline, as softer domestic inflation eased pressure on the Bank of Japan to tighten monetary policy in the near term. Japan’s core inflation rate slowed to 1.4% in April from 1.8% in March, marking its lowest level in four years and remaining below the central bank’s 2% target for a third straight month. At its April meeting, the BOJ sharply raised its core inflation forecast to 2.8% from 1.9%, citing elevated crude oil prices tied to the Middle East conflict and continued cost pass-through by businesses to consumers. The latest data also followed reports that PM Sanae Takaichi signaled openness to a supplementary budget aimed at addressing rising energy costs. Meanwhile, traders remained alert for possible currency intervention as the yen continued to trade near the 160-per-dollar level that reportedly triggered Tokyo’s intervention efforts in late April and early May.

The Japanese yen strengthened past 159 per dollar on Thursday, snapping its recent decline as oil prices and the US dollar weakened amid growing optimism over a potential peace agreement between the US and Iran. President Donald Trump said the US was in the final stages of negotiations with Iran, raising expectations that the strategically important Strait of Hormuz could soon reopen. On the domestic front, data showed Japanese exports rose 14.8% in April, exceeding forecasts on the back of solid demand from China, the US, ASEAN nations and the European Union. Meanwhile, the yen remained close to the key 160-per-dollar threshold that reportedly prompted intervention by Japanese authorities in late April and early May. Several officials in Tokyo recently indicated that policymakers could intervene in the foreign exchange market as often as necessary to stabilize the currency if excessive volatility persists.