Yen heads for another weekly loss amid heightened market alert

The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, extending its recovery from a five-week low against the US dollar. Despite the rebound, the Japanese currency remains on track to post another weekly loss, weighed down by escalating geopolitical tensions in the Middle East.

Data released in Tokyo showed stronger-than-expected wage growth in Japan, adding to inflationary pressures on policymakers at the Bank of Japan and strengthening expectations of an interest rate hike later this month.

Price Overview

• USD/JPY today: The dollar fell by around 0.1% against the yen to ¥159.90, from an opening level of ¥160.01, after reaching an intraday high of ¥160.02.

• The yen closed Thursday up about 0.1% against the dollar, recording its first daily gain in four sessions as part of a recovery from a five-week low of ¥160.09.

Weekly Performance

So far this week, which officially concludes with Friday’s settlement, the yen is down approximately 0.5% against the US dollar and is on course for its fourth consecutive weekly decline.

The losses have been driven by renewed military tensions in the Gulf region, which have reduced optimism about the success of peace negotiations between the United States and Iran.

Japanese Wages

Japan’s Ministry of Labor reported on Friday that total monthly cash earnings, along with a separate measure of full-time wages, increased 3.5% year-over-year in April, exceeding expectations of a 3.2% rise. Wage growth had previously reached 3.1% in March.

Stronger wage growth is widely viewed as paving the way for further price increases and faster inflation in the months ahead, increasing pressure on Bank of Japan policymakers and reinforcing expectations of a rate hike in June.

Japanese Interest Rates

• Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank needs to continue raising interest rates in response to economic and inflation developments.

• Ueda added that upside risks to prices appear greater than downside risks and could materialize faster than previously anticipated.

• Following the wage data and Ueda’s comments, market pricing for a 25-basis-point rate hike at the June meeting rose from 65% to 85%.

• The Bank of Japan is scheduled to meet on June 15–16 to assess the appropriate monetary policy stance for the world’s fourth-largest economy.

The ¥160 Threshold

Japanese authorities continue to closely monitor currency movements, particularly as the yen hovers around the critical ¥160-per-dollar level, which markets view as a potential trigger for official intervention.

According to Reuters sources, Tokyo intervened several times in late April and early May to support the currency, although the resulting strength proved short-lived. At that time, the exchange rate weakened to ¥159.25 per dollar, its lowest level since April 30.

Japanese officials have repeatedly warned against excessive currency volatility and indicated that decisive action could be taken against disorderly market moves.

Finance Minister Satsuki Katayama reiterated that the government is “prepared to take appropriate action” if currency markets experience excessive or speculative movements.

US Dollar

The US Dollar Index fell about 0.1% on Friday, extending losses for a second consecutive session and moving further away from its two-month high, reflecting continued weakness in the US currency against a basket of global peers.

The dollar has come under pressure as risk appetite improves modestly and investors maintain hopes that the United States and Iran are nearing a peace agreement that could bring an end to the three-month conflict.

Latest Developments in the Iran Conflict

• Hezbollah’s leader rejected the proposed ceasefire agreement in Lebanon.

• The rejection has cast a shadow over Middle East stability and prospects for ending the Iran conflict.

• The Lebanon ceasefire remains linked to broader negotiations between the United States and Iran.

• US President Donald Trump said talks with Iran are progressing well and hinted that meaningful developments could emerge by the end of this week.

• Trump also stated that he could meet Iran’s Supreme Leader “if an agreement is reached.”