The Japanese yen has once again depreciated against the US dollar, falling into the range of 160 yen per dollar on June 3rd.
This marks the first time since April 30th that the yen has weakened to this level, bringing the exchange rate nearly back to where it was just before the Japanese government and the Bank of Japan intervened in the foreign exchange market by buying yen and selling dollars.
Market expectations for a resolution to the US-Iran conflict have diminished, driving the price of the international crude oil benchmark, WTI futures, above $90 per barrel. Given Japan's heavy reliance on energy imports, there is a growing market expectation that the nation's trade deficit will widen further. This situation tends to encourage trades that involve selling yen and buying dollars.
A chief FX strategist at SMBC noted that the pressure from rising crude oil prices makes it easier for selling pressure on the yen to accumulate. He suggested that while not an exact threshold, the 160-161 yen per dollar range could be a focal point for potential further intervention by authorities. Japan's finance minister has stated that the authorities are prepared to respond appropriately to foreign exchange developments.
In broader currency markets, trading remained within narrow ranges. The euro dipped 0.09% against the dollar to $1.1621, while the British pound fell 0.07% to $1.3455.
The prolonged conflict in the Middle East and persistently high energy prices have led investors to increase their bets on major central banks tightening monetary policy this year. This shift is a stark contrast to the market's previous expectations for interest rate cuts before the conflict escalated.
The US dollar index, which measures the greenback against a basket of other currencies, held steady at 99.28, following a slight overnight gain. Data released on Tuesday showed that US job openings in April increased at the fastest pace in five years, although this surge may overstate the actual health of the labor market.
An analyst from the Commonwealth Bank of Australia commented that the US labor market is improving after a period of weakness in 2025. Coupled with high inflation, this leads to an expectation that the Federal Reserve will begin a tightening cycle in December 2026.
Market pricing currently suggests expectations for the Federal Reserve to raise interest rates by approximately 18 basis points by December.
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