In Tokyo trading on the morning of the 2nd, the yen settled in the low ¥160s against the dollar, with rising oil prices and U.S. interest rates contributing to the move. Concerns over a deterioration in Japan's trade balance were also seen as a drag on the yen.
In the Tokyo foreign exchange market on the morning of the 2nd, the yen weakened against the dollar, with the exchange rate rising from ¥160.13 to ¥160.39. At 8:30 a.m., the rate was ¥160.19–¥160.21 to the dollar, representing a 21-sen yen depreciation and dollar appreciation from 5 p.m. the previous day. The euro-yen pair traded in a ¥185.58–¥185.75 range, while the euro-dollar pair moved between $1.1576 and $1.1596.
The biggest factor supporting the yen's weakness was higher oil prices. Front-month U.S. crude futures rose about 5% from the previous day and ended trading in the $90s per barrel. Against the backdrop of deteriorating conditions in the Middle East, U.S. forces were reported to have begun air strikes on Iran, with related supply-and-demand conditions driving up oil prices.
Higher U.S. interest rates are also weighing on the yen. The probability of a September rate hike as reflected in FedWatch briefly rose to just under 70%, while the 10-year Treasury yield, a benchmark for long-term U.S. interest rates, was trading near 4.80%. Movements in the U.S.-Japan interest-rate differential are encouraging yen selling and dollar buying.
In comments from Bank of Japan officials, Governor Ueda (植田) said at a press conference following the G20 meeting that he had no comment on the timing of rate hikes, while indicating that future deliberations would take into account developments in the Middle East, AI and foreign exchange markets. Policy Board member Takata (高田) also called for a cautious and flexible response to price trends and adjustments to government bond purchases.
Market participants are concerned that the yen settling in the ¥160 range could increase costs for importers and add to upward pressure on prices, while exporters are expected to receive some benefit. Developments in the Middle East and the direction of U.S. monetary policy are being closely watched.