Key facts
- The Japanese yen weakened to the 160 per dollar level.
- Renewed Gulf hostilities increased demand for the U.S. dollar as a safe-haven asset.
- Japanese officials issued verbal warnings and stated readiness to respond to exchange rate moves.
- The yen's move to 160 erased gains from a prior intervention.
- Rising crude oil prices are contributing to yen-selling pressure.
The Japanese yen weakened to the 160 per dollar level on Wednesday, as renewed hostilities in the Gulf bolstered demand for the U.S. dollar as a safe-haven asset. U.S. Central Command reported Iran launched ballistic missiles toward regional neighbors, which failed to hit targets, and that U.S. forces conducted strikes on Qeshm Island in response to attempted attacks by Tehran. These strikes occurred amid stalled diplomatic talks between Iran and the United States, contributing to a sombre market mood and strengthening the dollar. The yen's weakening to the 160 level erased gains made after a significant intervention by Japanese authorities a month prior. Analysts suggest that upward pressure on crude oil prices is facilitating yen-selling pressure. Japanese Prime Minister Sanae Takaichi stated that authorities stood ready to respond to exchange-rate moves as needed. Bank of Japan Governor Ueda said the central bank must discuss the pros and cons of raising interest rates if inflationary risks outweigh downside risks to the economy. In broader currency markets, the euro and sterling eased against the dollar. Markets are pricing in approximately 19 basis points of Fed rate hikes by December, with a quarter-point hike fully priced in by March next year. Bitcoin and ether also slid to multi-month lows.