Federal Reserve Chair Warsh was reported to be prepared to raise rates in September depending on inflation, sending the yen down to the ¥158 range. Markets are assessing the US jobs report and risks in the Middle East.
The Financial Times reported that Federal Reserve Chair Warsh was prepared to raise rates as early as September depending on upcoming inflation data. The report highlighted the chair's hawkish stance amid pressure from President Trump to cut rates. Following the report, expectations for higher US interest rates spread through the Tokyo market on the 7th, and the yen was sold to around ¥158.57 at one point. Trends in long-term US interest rates have again become a focus.
Strength in the US labor market supported expectations of a rate hike. Job cuts announced by Challenger, Gray & Christmas in July fell 27% from the previous month, while initial unemployment insurance claims also came in below market expectations, reaffirming the economy's resilience. Against this backdrop, there were periods of stronger dollar buying.
Higher oil prices and risks in the Middle East also heightened inflation concerns. Reports emerged of possible restrictions on shipping through the Strait of Hormuz, strengthening upward pressure on front-month WTI futures. Domestic and overseas supply-demand conditions, as well as geopolitical risks, were simultaneously seen as factors behind the yen's weakness.
Political tensions over pressure from President Trump and the Fed's independence also affected markets. While views spread that the pressure could influence the Fed's policy decisions, some analysts noted that the medium- to long-term trend in foreign exchange could also be affected depending on the Bank of Japan's response. With the jobs report due, markets are likely to remain without a clear direction.