Japan's Finance Minister stated that remarks made by U.S. President Trump earlier this week regarding the Middle East situation have had a significant impact on financial markets. Ahead of the release of U.S. data, the minister expressed concern over increasing volatility in the currency and crude oil futures markets and reiterated a warning to speculators. Japanese Finance Minister Katsuya Shiota told reporters on Friday, "Trump's comments have had a fairly substantial impact on global markets—covering all asset classes." She added, "Speculative activity is increasing in both crude oil futures and foreign exchange markets, and volatility has risen significantly as a result." Shiota further stated, "The government is prepared to take measures across various areas." She reiterated her warning to speculators, indicating that "bold action" could be taken—a phrase often interpreted as a signal for potential currency market intervention. Her mention of crude oil futures suggests authorities are closely monitoring market movements beyond just exchange rates. Prior to Shiota's comments, the yen had weakened to 159.74 against the U.S. dollar. This movement followed remarks by Trump suggesting a potential escalation of conflict in the Middle East. On Thursday, Trump issued a new threat, stating he would strike Iranian infrastructure to force Tehran back to the negotiating table; this came just a day after he vowed to continue the war effort. This stance has already driven up oil prices, U.S. Treasury yields, and the U.S. dollar. The yen faced another test later on Friday with the release of the latest U.S. employment data. Stronger-than-expected figures could reinforce expectations that the Federal Reserve will delay interest rate cuts, potentially pushing the dollar higher and adding further pressure on the yen. Following Shiota's remarks, the yen traded around 159.67 in the Tokyo market during Friday's morning session. Amid the rapidly changing Middle East situation, warnings from Japanese authorities have had a relatively short-lived impact on the yen's trajectory. Just days after warnings from the Finance Ministry's top currency official helped curb the decline, the yen has returned to a precarious zone, hovering near the psychologically significant 160 level against the dollar. Since late 2022, Japanese authorities have spent over 24 trillion yen (approximately $150 billion) on market interventions to support the currency. The most recent intervention occurred in July 2024, when the yen had weakened past the 160 mark. Prior to that, in April and May of the same year, Japan conducted its largest-ever yen-buying interventions. Strategists at UBS Group anticipate that the yen's depreciation will persist despite officials intensifying their intervention rhetoric. Under a scenario of "sustained disturbances," they even project the dollar-yen exchange rate could reach 175 by year-end. Shiota noted that officials from the Group of Seven (G7), who participated in an online meeting on Monday, generally agreed that market volatility would remain elevated in the near term, regardless of developments in the Middle East. "Currently, the economic order globally and in Japan remains stable, but it is widely acknowledged that the outlook remains uncertain," Shiota said. "We need to take all possible measures to minimize this uncertainty as much as possible."
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