The Japanese yen weakened in Asian trading on Monday against a basket of major and minor currencies, extending its losses for a second consecutive session against the US dollar and moving further away from a two-week high as profit-taking and corrective selling continued.

The yen is once again drifting toward its weakest levels in 40 years, keeping investors focused on the potential next move by Japanese authorities, especially after the central bank's intervention in the foreign exchange market triggered only a brief rebound in the currency last Thursday.

The Price

• USD/JPY rose more than 0.35% on Monday to ¥161.86, up from an opening level of ¥161.26, with an intraday low of ¥161.24.

• The yen ended Friday down 0.15% against the dollar after reaching a two-week high of ¥160.48 earlier in the session.

• The Japanese currency gained 0.25% against the dollar last week, marking its first weekly advance since May, supported by speculation about a Bank of Japan intervention and weaker-than-expected US employment data.

Japanese authorities

The latest decline in the yen has brought the currency back into the spotlight as it trades near its weakest levels in four decades, reinforcing speculation that Japanese authorities could step into the foreign exchange market once again.

The yen fell to its lowest level since 1986 at ¥162.84 last Wednesday, prompting intervention by the Bank of Japan on Thursday. The move helped the currency rally 0.9%, its largest daily gain since May.

Views and analysis

• Analysts at OCBC believe intervention risks are more likely to trigger periods of volatility and temporary corrections rather than a lasting reversal in the USD/JPY trend.

• They added that without a meaningful shift in economic fundamentals, verbal warnings or even direct intervention alone are unlikely to change the broader direction of the currency pair.

• Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, said the market is fully aware of the risk of Japanese intervention.

• Chandler added that options market activity continues to show some large investors buying short-term dollar put options as a hedge against their long-dollar positions in case Japanese authorities intervene in the currency market.

US dollar

The US Dollar Index rose more than 0.1% on Monday, extending gains for a second straight session as the currency continued to recover from a two-week low, reflecting broader strength against a basket of global currencies.

Several analysts maintained a constructive outlook for the dollar and suggested it could appreciate by a modest 2%–3% during the second half of 2026.

Investors are focusing this week on the minutes of the Federal Reserve's June meeting for further insight into policymakers' interest rate expectations for the remainder of the year.

Japanese interest rates

• Market pricing for a 25-basis-point rate hike by the Bank of Japan at its July meeting remains below 25%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess the likelihood of future rate increases.

Gold prices rose more than 1% on Friday and were on track to post their first weekly gain in five weeks after weaker-than-expected US jobs data prompted investors to scale back expectations for further Federal Reserve interest rate hikes.

Gold performance

Spot gold climbed 1.4% to $4,179.94 per ounce by 02:35 GMT, reaching its highest level since June 23, while US gold futures for August delivery advanced 1.6% to $4,193.20 per ounce.

The precious metal is on course for a weekly gain of around 2.3%, its first since the week ending May 25, supported by softer expectations for tighter US monetary policy following weaker-than-expected employment data.

A weaker US dollar also helped support gold prices, making the dollar-denominated metal more attractive to holders of other currencies.

Federal Reserve and interest rate outlook

Kelvin Wong, Senior Market Analyst at OANDA, said markets have begun repricing expectations for US interest rate hikes for the remainder of this year and the first quarter of next year after clearer signs of a slowdown in the US labor market emerged.

Data from the US Department of Labor showed the economy added just 57,000 jobs in June, well below expectations of 110,000.

Following the report, the probability of a September rate hike fell to around 54%, down from 66% before the data release, according to the CME FedWatch Tool.

Higher interest rates typically weigh on gold because it is a non-yielding asset, while fixed-income investments such as bonds become more attractive.

Despite the recent rebound, Wong warned that markets have not completely ruled out further rate hikes. He noted that if those expectations persist through year-end, gold could face renewed downside pressure and potentially fall toward $3,500 per ounce.

Central banks return as buyers

Separately, the World Gold Council reported that central banks resumed increasing their gold reserves in May, with net purchases totaling 41 metric tons, according to the latest available data.

Other precious metals

Silver rose 2.3% to $62.43 per ounce, while platinum gained 2.7% to $1,660.05 per ounce.

Palladium also advanced 1.3% to $1,284.40 per ounce, with all three metals heading for weekly gains and trading at their highest levels in more than a week.

Oil prices were little changed on Friday and were heading for only modest weekly moves as traders remained hopeful that ongoing diplomatic efforts between the United States and Iran could lead to a lasting agreement.

Brent crude futures fell 8 cents, or 0.11%, to $71.72 per barrel by 01:09 GMT, while US West Texas Intermediate crude futures declined 22 cents, or 0.32%, to $68.47 per barrel.

For the week, both Brent and WTI were down around 0.3%.

US markets are closed on Friday for the Independence Day holiday.

Both benchmark contracts fell on Thursday to their lowest levels since before the outbreak of the US-Israeli conflict with Iran in late February.

Analysts at Commerzbank said oil prices remain under pressure as investors grow increasingly optimistic that the Strait of Hormuz could fully reopen, supported by ongoing peace talks between Washington and Tehran.

Meanwhile, analysts at Citi said negotiations remain fragile but continue to move forward despite unresolved disagreements over shipping management and transit fees in the Strait of Hormuz.

They added:

“We expect the memorandum of understanding to remain in place, not because trust has suddenly been established, but because incentives for either side to violate the agreement appear limited.”

Some shipping activity through the Strait of Hormuz has already resumed under the initial agreement between the United States and Iran. However, uncertainty remains elevated after the two sides exchanged strikes earlier this week following an Iranian attack on a commercial vessel.

Gulf producers increase output

As expectations grow for a broader recovery in oil exports, Gulf producers are ramping up output.

Kuwait’s crude oil production rose to 1.65 million barrels per day in June from 580,000 barrels per day in May, according to a source familiar with the matter who spoke to Reuters.

In addition, five very large crude carriers transporting roughly 10 million barrels of Saudi oil have passed through the Strait of Hormuz, while Saudi Aramco shifted part of its pricing strategy toward spot sales instead of long-term contracts in an effort to accelerate sales into Asian markets, according to shipping data and trading sources.

Tamas Varga, analyst at PVM, said any sustained recovery in oil prices will depend on the market’s ability to absorb crude currently stored in tankers and storage facilities, as well as whether higher production can fully compensate for volumes moving through the Strait of Hormuz.

With supply conditions improving, the oil market structure has shifted from backwardation into contango, signaling reduced concerns about future supply shortages.

The spread between spot Brent prices and the six-month futures contract turned negative on July 1 for the first time this year, indicating a more comfortable outlook for global oil supplies.

The British pound is on track to record its biggest weekly gain against the US dollar in nearly 12 weeks, supported by easing political concerns in the United Kingdom and a weaker dollar following softer-than-expected US labor market data.

Sterling rose 0.1% to $1.3357, bringing its weekly gain to 1.2%, its strongest performance since early April. The move came as the dollar weakened after data showed the US economy created fewer jobs than expected in June, reducing market expectations for further Federal Reserve interest rate hikes.

UK markets had recently been unsettled after Andy Burnham, the only Labour Party figure to publicly declare his intention to succeed outgoing Prime Minister Keir Starmer, gained support in the leadership race.

Burnham had previously argued that Britain should move beyond what he described as an excessive reliance on bond markets, raising concerns among some investors that he could abandon the government's commitment to fiscal discipline.

However, market sentiment improved after Burnham reaffirmed his support for the current fiscal framework, including funding day-to-day spending through tax revenues and reducing public debt as a share of gross domestic product.

Karl Steiner, Head of Research at SEB, said:

“A portion of the political risk premium is leaving sterling, which is helping support the currency.”

Against the euro, the pound edged slightly lower to 85.73 pence after reaching its strongest level against the single currency in a year on Thursday at 85.47 pence.

Bank of England remains in focus

Markets continue to assign a higher probability to a Bank of England rate hike than a rate cut this year, despite easing tensions with Iran and the gradual recovery of oil flows from the Middle East.

Catherine Mann, a member of the Bank of England’s Monetary Policy Committee, said on Thursday that improved financial conditions since the bank’s June meeting would play an important role in her decision at the July policy meeting.

Mann added that she would be prepared to vote for a rate increase if higher inflation expectations following the US-Iran conflict reduced the likelihood of inflation returning to the bank’s 2% target.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said Mann appeared willing to take a “pre-emptive” approach by raising rates if economic data in the second half of 2026 disappointed on the inflation front.

According to Kong, those comments provided additional support for the British pound.

Money market futures currently imply roughly a 70% probability of a Bank of England rate hike by year-end. Before the outbreak of the Middle East conflict, markets had been expecting the central bank to cut interest rates twice during 2026.