As crude oil prices rise amid mounting tensions in the Middle East, USD/JPY is expected to test the key ¥160 level. The July trade balance is expected to show a ¥649.0 billion deficit, with higher oil prices widely seen as a source of selling pressure on the yen.
Crude oil prices are rising against the backdrop of tensions in the Middle East, and USD/JPY is increasingly seen as likely to test the key ¥160 level in the foreign exchange market. There is growing speculation that higher oil prices will add to selling pressure on the yen by widening Japan’s trade deficit.
The July trade balance, due to be released this week, is expected to show a ¥649.0 billion deficit, widening from the ¥406.9 billion deficit in June. If crude oil prices remain elevated at current levels, the August deficit is also considered likely to widen.
U.S. President Donald Trump has indicated that he does not intend to extend a memorandum aimed at ending the conflict with Iran, and has stressed that he is prepared to launch bombings against Oman. With tensions between the United States and Iran rising again, some analysts say USD/JPY could test a break above ¥160 if crude oil prices continue to rise.
In Japan, expectations for a Bank of Japan rate hike and concerns about foreign exchange intervention remain, and are being watched as factors limiting the yen’s upside. U.S. economic indicators were mixed: July retail sales fell short of expectations, while the University of Michigan Consumer Sentiment Index declined for the first time in 3 months.