War accelerates yen weakness…Dollar breaks above 160 yen for first time in 1 year and 8 months

Dollar rises as Middle East tensions worsen

Higher oil prices weigh on the yen

Focus on Japanese authorities’ yen-buying intervention

The yen-dollar exchange rate climbed above 160 yen per dollar for the first time in 1 year and 8 months. The move was driven by a stronger dollar amid deteriorating conditions in the Middle East. Rising crude prices also contributed to yen weakness. Markets see an increased likelihood that the Japanese government will step in with yen-buying intervention.

On the 27th (local time) in New York’s FX market, the yen-dollar rate surged into the 160-yen-per-dollar range. It was the first time the rate returned to that level since July 11, 2024, when the Japanese government and the Bank of Japan conducted yen-buying intervention—1 year and 8 months ago. Nikkei reported that “as the situation in the Middle East becomes more tense, the ‘buy dollars in times of crisis’ pattern continues.”

A rise in U.S. interest rates tied to higher oil prices is also adding to upward pressure on the dollar. The yield on the 10-year U.S. Treasury has been trending higher on inflation concerns stemming from the oil rally. On the 27th it rose to the 4.4% range, marking the highest level in eight months. Against that backdrop, selling of the yen and buying of the dollar have continued on expectations the U.S.-Japan rate gap will widen.

Higher oil prices are also continuing to push the yen lower. On the 27th on the New York Mercantile Exchange, the May-delivery West Texas Intermediate (WTI) contract settled at $99.64 a barrel, up $5.16 (5.46%) from the previous session. Nikkei said that “expectations are growing that Japan’s trade deficit will widen, as the country depends on energy imports.”

In the market, speculation is building that the Japanese government is more likely to conduct yen-buying intervention. Atsushi Mimura, vice finance minister for international affairs at Japan’s Ministry of Finance, said on the 23rd regarding yen weakness, “We will be fully prepared to respond in all respects at any time.” Earlier, on the 19th, Finance Minister Satsuki Katayama said, “We will prepare thoroughly.”

In Japan, the 10-year government bond yield—a key long-term rate benchmark—has also been rising. In Japan’s bond market, the 10-year JGB yield climbed to 2.385% the previous day (bond prices fell). That is the highest level in 27 years, since February 1999. The move reflects growing expectations that the Bank of Japan will raise its policy rate earlier than anticipated amid inflation concerns tied to higher oil prices.

In an interview with Asahi Shimbun that day, former BOJ Governor Haruhiko Kuroda said there is no longer a need to continue monetary easing, and recommended raising the policy rate—currently 0.75% per year—by 0.25% point 3–4 times this year and next to around 1.5%.

Reporter Il-gyu Kim black0419@hankyung.com