The Japanese yen neared its weakest level in 40 years against the US dollar on Friday, extending losses for a second consecutive session as investors kept a close watch on Japanese authorities for any signs of intervention in the foreign exchange market.

Global oil prices remained close to one-month highs due to supply disruptions through the Strait of Hormuz, renewing concerns over inflationary pressures on the Bank of Japan and strengthening expectations of another Japanese interest rate hike in October.

The Price

• The US dollar rose around 0.1% against the yen to ¥162.47, from an opening level of ¥162.38, after touching an intraday low of ¥162.31.

• The yen closed Thursday down 0.15% against the dollar, marking its first daily loss in three sessions after stronger-than-expected US jobless claims data.

Weekly performance

For the week so far, with trading set to conclude at Friday's settlement, the Japanese yen is down around 0.5% against the US dollar and is on track for a second consecutive weekly loss.

Japanese authorities

The yen has once again come under close scrutiny as it approaches its weakest levels since 1986 against the US dollar, increasing speculation that Japanese authorities could intervene to support the currency and curb excessive weakness.

US dollar

The dollar index rose 0.1% on Friday, extending gains for a second straight session as the US currency strengthened against a basket of major and minor currencies.

Demand for the dollar as a safe-haven asset remained firm as military exchanges between the United States and Iran continued to intensify alongside declining shipping traffic through the Strait of Hormuz, raising concerns over disruptions to global oil supplies.

Latest developments in the Iran conflict

• The United States launched a sixth consecutive day of airstrikes targeting sites inside Iran.

• Iran's Revolutionary Guard responded with retaliatory ballistic missile and drone attacks targeting military bases hosting US forces across the region.

• Iran warned that the Strait of Hormuz remains a "red line," pledging to respond to any attacks on its infrastructure.

• Reports indicated that Tehran is considering broadening its response, including threatening shipping routes in the Red Sea if US strikes continue.

• The US fleet, consisting of 20 warships and hundreds of fighter aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• Recent developments suggest that the temporary de-escalation agreement reached in June has effectively collapsed, with negotiations halted and large-scale military operations resuming.

Japanese interest rates

• As global oil prices continue to rise, market pricing for a 25-basis-point rate hike by the Bank of Japan at its July meeting has climbed above 30%.

• Expectations for a quarter-point rate hike at the Bank of Japan's October meeting have increased to above 85%.

• Investors now await additional Japanese inflation, employment, and wage data for further guidance on the outlook for monetary policy.

Oil prices were little changed on Thursday after Iran reportedly instructed Yemen's Houthi movement to prepare for closing a key oil export route through the Red Sea if the United States launches strikes against Iran's energy infrastructure.

Brent crude futures slipped 3 cents to $84.92 a barrel, while US West Texas Intermediate (WTI) crude futures fell 5 cents to $79.55 a barrel.

Fresh Risks to Global Energy Supplies

Wael Makarem, Chief Market Strategist at Exness, said: "Simultaneous disruptions affecting both the Strait of Hormuz and the Bab al-Mandab Strait would significantly increase pressure on global supply chains, reduce the availability of oil tankers, and drive insurance premiums higher."

Three Reuters sources said on Thursday that Iran had instructed the Houthi movement in Yemen to prepare to block oil shipments through the Red Sea if the United States targets Iranian energy infrastructure, creating a new and serious threat to global energy supplies.

A closure of the Bab al-Mandab Strait—the southern gateway to the Red Sea—would open a new front in the energy crisis and the broader confrontation between Iran and the United States. According to Kpler data, about 7.4 million barrels of oil per day passed through the strait in June, equivalent to roughly 7% of global oil production, compared with 4.2 million barrels per day a year earlier.

Escalating Tensions Raise Risks Around the Strait of Hormuz

On Wednesday, the United States struck Iranian coastal defense systems and missile sites after reimposing a naval blockade on Iranian ports. Tehran responded by threatening to halt additional regional energy exports, describing the conflict with the United States as an "existential war."

The latest escalation follows the collapse of a fragile ceasefire reached in June, reviving fears of a broader regional conflict and disrupting energy flows through the Strait of Hormuz, which handled around one-fifth of the world's daily oil and liquefied natural gas trade before the conflict began.

Shipping activity through the strait slowed on Wednesday, the first day after the United States reinstated its naval blockade on Iran, with only seven vessels transiting the waterway compared with 13 the previous day.

Ole Hvalbye, Commodities Analyst at SEB Research, said it would be reasonable for oil prices to continue climbing toward $90–95 per barrel and potentially revisit the $100 level, as repeated disruptions in the Strait of Hormuz continue to create uncertainty over crude exports from the Gulf region.

Oxford Economics said its base-case scenario assumes shipping through the strait will continue at reduced and volatile levels, resulting in intermittent spikes in oil prices that keep average crude prices above $80 per barrel for several quarters.

Separately, Ukraine's Security Service said on Thursday that, in cooperation with the Ukrainian Navy, it had targeted two Russian tankers belonging to the so-called "shadow fleet" using naval drones in the Black Sea.

Gold prices declined on Thursday as escalating tensions in the Middle East pushed US Treasury yields higher, intensifying inflation concerns and reinforcing expectations that US interest rates will remain elevated.

Spot gold fell 1.7% to $3,989.95 per ounce after dropping as much as 2% earlier in the session. Meanwhile, US gold futures declined 1.4% to $3,994.30 per ounce.

Rate Hike Bets Increase

Traders are now pricing in roughly a 55% probability that the US Federal Reserve will raise interest rates in September, according to the CME FedWatch Tool.

Benchmark 10-year US Treasury yields moved higher, while the US dollar gained around 0.3%, making gold more expensive for overseas buyers.

Earlier this week, Federal Reserve Chairman Kevin Warsh reaffirmed his commitment to bringing inflation under control, although he stopped short of providing specific guidance on how that objective would be achieved.

Inflation Data and Energy Prices

Meanwhile, data released on Tuesday showed US consumer price inflation slowed in June, while Wednesday's figures indicated a decline in producer prices.

Fawad Razaqzada, Market Analyst at Forex.com, said in a note: "Even if some near-term economic data continues to soften, persistently high energy prices will make it difficult for the Federal Reserve to adopt a more dovish policy stance. For the same reason, investors continue to favor the US dollar over non-yielding gold."

The S&P 500 and Nasdaq indices moved lower on Thursday as continued weakness in semiconductor stocks overshadowed the positive start to the second-quarter earnings season, while investors continued to assess the latest economic data for clues about the strength of the US economy.

The Philadelphia Semiconductor Index (SOX) fell 3.8%, extending its losses for a second consecutive session.

Taiwan Semiconductor Manufacturing Company (TSMC) shares also declined 2.5%, despite the company reporting strong financial results. The world's leading producer of advanced AI chips delivered solid earnings, but the report failed to lift sentiment across the semiconductor sector, adding to market volatility.

Memory chipmakers were among the biggest losers, with Western Digital dropping 7.3%, Seagate Technology falling by the same percentage, and Micron Technology losing 4.8%.

Semiconductor stocks have been among this year's strongest performers, fueled by optimism surrounding artificial intelligence spending by major cloud computing companies, helping drive Wall Street's benchmark indices to record highs.

Shiraz Ahmed, founder and CEO of Sartorial Wealth, said the rally in semiconductor stocks is beginning to lose momentum—not because enthusiasm for artificial intelligence has faded, but because broad adoption of AI technologies has yet to materialize. As a result, heavy capital spending across the AI ecosystem, from energy infrastructure to semiconductor manufacturing, remains in place.

The S&P 500 has gained more than 10% since the start of the year and remains close to the record closing high it reached in June, leaving the market increasingly vulnerable to any earnings or economic disappointment.

Economic Data and Earnings Support Sentiment

Consumer staples led gains among the S&P 500 sectors, rising 2.1%, while a 1.9% decline in the information technology sector limited broader market gains.

US retail sales for June posted only a modest increase, as lower gasoline prices weighed on revenue at service stations. However, consumers seeking lower prices continued to support underlying spending.

Bill Adams, Chief Economist at Fifth Third Commercial Bank, said the slowdown in headline retail sales growth is actually a positive development because it reflects lower gasoline prices rather than weakening consumer demand. He added that the report supports expectations for solid real GDP growth during the second quarter.

Meanwhile, initial weekly jobless claims fell to 208,000 in the week ended July 11, coming in below economists' expectations.

At the same time, June inflation data released earlier this week helped ease concerns over additional monetary tightening by the US Federal Reserve.

Markets are currently pricing in an 88% probability that the Federal Reserve will leave interest rates unchanged at this month's policy meeting, according to the CME FedWatch Tool.

As of 9:50 a.m. Eastern Time, the Dow Jones Industrial Average rose 82.28 points, or 0.16%, to 52,740.92. The S&P 500 fell 29.56 points, or 0.39%, to 7,542.84, while the Nasdaq Composite declined 262.08 points, or 1.00%, to 26,007.14.

UnitedHealth raised its 2026 earnings forecast, sending its shares up 7.8% and helping support the Dow Jones Industrial Average, while the healthcare sector advanced 2%.

In contrast, United Airlines fell 2.8% as the latest rise in oil prices weighed on its third-quarter and full-year 2026 profit outlook. GE Aerospace also declined 4.4% despite raising its earnings forecast for 2026.

Geopolitical Tensions Remain in Focus

Escalating tensions between the United States and Iran remained firmly on investors' radar after Reuters reported, citing sources, that Iran had instructed the Houthi movement in Yemen to prepare to disrupt oil shipping through the Red Sea if the United States carries out strikes targeting Iran's energy infrastructure. Such a move would represent a fresh threat to global energy supplies.

Market breadth was mixed. Advancing stocks outnumbered decliners on the New York Stock Exchange by a ratio of 1.02 to 1, while declining stocks outpaced advancing issues on the Nasdaq by 1.55 to 1.