The spillover effects of the Middle East conflict are impacting the global foreign exchange market.
During Friday's Asian trading session, the Japanese yen to US dollar exchange rate fell to 159.69, the lowest level since July 2024.
Oil Prices as a Key Variable
International oil prices remain around 100 dollars, putting Japan's economy, which heavily relies on imported energy, under greater inflationary pressure.
Rising energy prices typically widen Japan's trade deficit and weaken the yen's exchange rate.
Intervention Risks Resurface
Current exchange rate levels are approaching the area where the Japanese government previously intervened in the forex market.
In 2024, Japanese authorities intervened near the 160 level of the yen to stabilize the exchange rate.
Interest Rate Differentials Still Support the Dollar
Market analysts note that the core reason for the dollar's continued strength remains the interest rate differential.
As U.S. short-term Treasury yields rise, and with the Bank of Japan expected to maintain its rates unchanged in the upcoming policy meeting, the USD/JPY exchange rate could rise further.
Some institutions expect that if oil prices continue to rise and U.S. bond yields remain high, the dollar/yen rate might test the 160 level.
