Amid persistent concerns over Middle East-related crude oil supply and rising US interest rates, Brent tested levels above $110 and the US 10-year Treasury yield rose to just below 5%. The yen rose into the ¥152 range. The FOMC and Bank of Japan policy meetings are scheduled for next week, but Middle East supply risks remain a factor capable of moving markets.
During the week of 7 September, Brent crude rose to around $110, while the US 10-year Treasury yield rose to just below 5%. The ECB raised its policy rate by 0.25 percentage points, while the yen strengthened into the ¥152 range. The move was driven primarily by expectations of an additional Bank of Japan rate hike and unwinding of yen carry trades, while crude oil prices and interest rates rose at the same time.
The surge in crude oil prices spilled over into gasoline prices, transportation costs and manufacturing costs, reigniting upward pressure on inflation. The stronger-than-expected increases in US August CPI and PPI also increased market pricing for a September rate hike in the interest-rate futures market.
Domestic factors were particularly influential during the period when the yen strengthened despite rising interest rates and crude oil prices. An additional rate hike was reportedly under discussion at the Bank of Japan meeting on 17–18 September, and there was speculation that yen-selling positions were being unwound and yen carry trades were being closed out.
Over the weekend, Saudi Arabia’s East-West Pipeline was shut down as a precaution after an attack, reviving supply risks along routes that bypass the Strait of Hormuz. The movements of Houthi rebels also increased market uncertainty and could affect developments in the crude oil market and monetary policy next week.