Yen hovers near a four-week low as inflation pressures ease

The Japanese yen declined in Asian trading on Friday against a basket of major and minor currencies, resuming losses that were temporarily halted yesterday against the US dollar and moving back toward its lowest level in four weeks. The currency is also on track to post a monthly loss in May, weighed down by higher US Treasury yields.

The yen’s decline comes alongside a renewed rise in the US dollar as markets await final approval from US President Donald Trump for the preliminary peace agreement between Washington and Tehran. The Japanese currency is also facing additional pressure after data showed a slowdown in Tokyo’s core inflation during May.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.1% to ¥159.36, from today’s opening level at ¥159.23, and recorded a low of ¥159.16.

• The yen ended Thursday’s trading up around 0.2% against the dollar, its first gain in the past three sessions, after earlier touching a four-week low of ¥159.65.

• Aside from buying activity from lower levels, the yen benefited from reports of a preliminary peace agreement between the United States and Iran.

Monthly performance

• During May trading, which officially concludes with today’s settlement, the Japanese yen is currently down about 1.8% against the US dollar, on track for its third monthly loss in the past four months.

• The monthly decline reflects investor preference for the US dollar as a safer alternative investment amid the fallout from the Iranian war and continued tensions between the United States and Iran.

• It also comes as the yield on the 10-year US Treasury note has risen to its highest level in a year due to mounting inflationary pressures on the Federal Reserve.

US dollar

The dollar index rose 0.1% on Friday, resuming gains that paused in the previous session and moving toward a seven-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The rise comes as demand for the US dollar as a safe haven returns amid continued uncertainty surrounding the preliminary peace agreement between the United States and Iran, which is still awaiting final approval from President Donald Trump.

Latest developments in the Iranian war

• The United States and Iran have reached an agreement, but it still requires Trump’s final approval.

• The agreement includes a 60-day ceasefire, the lifting of restrictions on navigation through the Strait of Hormuz, and further nuclear negotiations.

• US President Donald Trump requested a few days to consider the final agreement.

• Iran’s state news agency said the agreement has not yet been finalized.

• The United States warned Oman against becoming involved in Strait of Hormuz transit fees.

Tokyo core inflation

Data released in Japan today showed Tokyo’s core consumer price index rose 1.3% in May, the slowest pace since March 2022, below market expectations of 1.5% and down from 1.5% in April.

Weaker-than-expected inflation readings in Japan indicate easing price pressures on Bank of Japan policymakers, reducing the likelihood of additional Japanese interest rate hikes this year.

Japanese interest rates

• Following the data release, market pricing for a quarter-point interest rate hike by the Bank of Japan at its June meeting declined from 65% to 60%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan in order to reassess those expectations.

The ¥160 threshold

Japanese authorities are closely monitoring movements in the local currency, particularly as the yen weakens toward the critical ¥160 per dollar level, which has long been viewed as a threshold that could trigger renewed intervention in the foreign exchange market.

Reuters sources previously reported that Tokyo intervened several times in late April and early May to halt the yen’s decline, although the currency’s recovery proved short-lived. At the time, the exchange rate reached ¥159.25 per dollar, its weakest level since April 30.

Outlook for the Japanese yen

• Tony Sycamore, market analyst at IG, said previous intervention by the Bank of Japan provided policymakers with some relief, but questions remain regarding its long-term effectiveness.

• Sycamore added: “The key question is whether that intervention was worthwhile for what was essentially only a temporary one-month reprieve. Moreover, will authorities have the capacity to provide similar support if the ¥160 level is breached again in coming sessions?”