Yen’s Worst Week Since May Brings It Close to 165 Versus Dollar

oaq3]7hdelu6o63}m2ig)zgq_media_dl_1.png Bloomberg

Article content

(Bloomberg) — The yen is on track for its biggest weekly loss in more than two months, with intervention warnings doing little to deter investors betting on further weakness.

Article content

Japan’s currency is approaching the closely watched 165-per-dollar level after hitting a fresh 40-year low of 163.99 on Thursday. It’s dropped about 0.9% so far this week, putting it on course for its worst weekly performance since May when it weakened in the aftermath of Japan’s record intervention.

Article content

Article content

Article content

Meanwhile, the dollar has climbed as escalating tensions in the Middle East spark concerns over energy supply disruptions and fuel expectations that the Federal Reserve will raise interest rates.

Article content

Article content

Earlier this week, traders shrugged off comments from two senior Japanese officials who warned that authorities are ready to take action in the currency market if necessary. While people familiar with the matter said that Bank of Japan officials are open to raising interest rates at a faster pace than the consensus among economists, the still-wide interest-rate differential between the US and Japan is weighing on the yen.

Article content

“Against the backdrop of surging energy prices, the hawkish Fed repricing, and the yen’s loss of safe-haven status, any comments from Japanese officials today about being ready to intervene or faster BOJ rate hike will likely be ignored,” said Tony Sycamore, an analyst at IG Australia, who sees dollar-yen extending gains toward 165. “At this point trying to support the yen here would be akin to standing in the way of a bullet train.”

Article content

The BOJ is widely expected to hold rates steady at its policy meeting next week. Half of economists surveyed by Bloomberg still expect the central bank to wait until December to lift rates, with Prime Minister Sanae Takaichi’s government seen as a key obstacle to further action.

Article content

Article content

Concerns about Takaichi’s fiscal policy are also pressuring the currency after the administration approved an economic and fiscal policy plan this week. Without details of how the government will secure its targeted investment or how it will fund the likely sales tax cut and ramped-up defense spending, the plan provides little relief for market participants concerned about the nation’s longer-term debt trajectory. 

Article content

With the Iran-backed Houthis claiming their first attack on commercial ships in recent months, Brent oil prices topped $100 per barrel and West Texas Intermediate was near $92 a barrel. Higher oil prices are pushing traders to price in a greater likelihood that the Fed under Chairman Kevin Warsh will raise rates, with a quarter-point move fully priced by September. 

Article content

“If WTI crude climbs to $100 a barrel, dollar-yen could rise to around 164.50,” said Yuya Yokota, an FX trader at Mitsubishi UFJ Trust and Banking in New York. “With the yen nearing 164 against the dollar, market participants are closely watching how Japanese authorities will respond.”

Article content

—With assistance from Masahiro Hidaka.

Article content