Yen Finds Support as Dollar Weakens

The Japanese yen steadied around 162 per dollar on Wednesday, drawing support from a weaker dollar after softer-than-expected US inflation data eased concerns about imminent Federal Reserve interest rate hikes. Still, the outlook remained clouded by rising geopolitical tensions in the Middle East, with oil prices climbing after President Donald Trump threatened additional strikes on Iran while reinstating a US blockade against Tehran in the Strait of Hormuz. In Japan, data showed machinery orders declined more than expected in May, highlighting broad-based weakness in business investment. Despite the modest rebound, the yen remained near 40-year lows amid the absence of concrete measures from Tokyo to bolster the currency. A recent report also indicated that Japan has no immediate plans to adjust the asset allocation of its state pension funds, dampening expectations for near-term support for domestic assets.

The Japanese yen traded around 162.4 per dollar on Tuesday, holding onto losses from the previous session and hovering near its weakest level in four decades amid the absence of follow-up intervention by Japanese authorities. On Monday, the currency weakened sharply after Reuters reported that Tokyo had no immediate plans to alter the asset allocation of its state pension funds, reducing expectations of near-term support for domestic assets. However, Finance Minister Satsuki Katayama said the country’s massive pension fund would adjust its holdings if necessary, while also proposing the inclusion of government bonds in a tax-free investment program for individual investors. The yen also remained under pressure as the dollar strengthened and oil prices surged after President Donald Trump announced plans to reinstate a blockade on Iranian vessels transiting the Strait of Hormuz and sought reimbursement from countries benefiting from US efforts to secure the vital shipping lane.

The Japanese yen weakened to around 162 per dollar on Monday, giving back the previous session’s gains as escalating tensions in the Middle East pressured the currency. The US and Iran exchanged fresh missile strikes over the weekend amid ongoing disputes over shipping through the Strait of Hormuz, driving oil prices higher and reinforcing expectations of interest-rate hikes to curb inflation. Japan’s economy and currency remain particularly vulnerable to higher oil prices due to the country’s heavy reliance on crude imports from the Middle East. The yen also faced additional pressure from a stronger dollar, which continued to attract safe-haven demand amid the geopolitical crisis. Last Friday, the yen surged after Finance Minister Satsuki Katayama said the government would encourage domestic pension funds to increase their allocations to Japanese financial assets.