Yen records biggest weekly drop in over two months

The dollar was set for its biggest weekly gain since mid-June, buoyed by the rise in oil prices, while the yen was poised for its largest weekly percentage decline in more than two months as the currency languishes at 40-year lows despite Japan’s pledges to buttress the currency.

Verbal efforts to support the yen have seen muted results, with Japan’s Finance Minister Satsuki Katayama once again reiterating on Friday the government’s readiness to take action in the foreign exchange market.

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Some analysts see another intervention by Japanese officials as likely to have only a short-lived effect, similar to recent interventions in the currency, without coordinated steps such as a more aggressive path of rate hikes by the Bank of Japan (BOJ).

The US Treasury Department on Thursday joined calls for rate hikes by the BOJ, warning that excessive currency volatility was undesirable.

Markets have completely priced out any chance of a rate hike from the BOJ at its policy meeting next week, according to LSEG data.

“It’s not surprising that dollar-yen has gone up under the conditions that we’re facing. It’s a low-yielding currency facing a terms-of-trade shock with higher oil prices,” said Thierry Wizman, global FX & rates strategist at Macquarie Group in New York.

“So if there’s going to be a currency that the specs are going to go after in those conditions, it’s going to be the yen,” Wizman said.

“... And so that girds the whole thesis for why it’s been dollar-yen ... doing so well since the (Iran) war began, since oil prices went up.”

The war began on February 28.

The dollar index, which measures the greenback against a basket of currencies, inched up 0.01 percent to 101.46 and was up about 0.7 percent for the week, on track for its biggest weekly gain in five weeks.

Against the Japanese yen, the dollar weakened 0.02 percent to 163.81 but was up nearly 0.9 percent on the week, which would mark its strongest week against the currency since May 15.

On Thursday, the dollar hit 163.98, its strongest against the yen since November 1986.

The dollar has been rising in recent days as renewed strikes in the Iran war have caused a reversal in oil prices and again fanned inflation fears, in turn buoying expectations the US Federal Reserve may hike interest rates.