The Japanese yen weakened against the U.S. dollar in Tokyo foreign exchange trading, hovering in the lower 160 range as surging crude oil prices and rising U.S. interest rates spurred aggressive selling, according to market participants. Dollar-yen moved within a range of 160.13 to 160.39 yen during morning sessions, with the pair standing at 160.19 to 160.21 yen at 8:30 a.m., marking a 21-sen depreciation for the Japanese currency.
Crude Oil Surge and Middle East Tensions Weigh on Japan Trade Balance
Market participants noted that yen selling accelerated on expectations that higher energy costs will worsen Japan’s trade balance. West Texas Intermediate (WTI) U.S. crude futures for October delivery closed up more than 5% at over $90 per barrel on the 1st, hitting its highest level since late July. U.S. Central Command disclosed on the 1st that it had launched airstrikes against Iran, while President Trump warned on social media that any retaliation would prompt harsher attacks, driving risk-averse dollar buying amid fears of prolonged regional turmoil.
U.S. Interest Rates and the Persistent Japan-U.S. Yield Gap
Growing expectations for an earlier U.S. rate hike are widening the divergence between American and Japanese monetary policy. According to FedWatch data, the probability of a September Federal Reserve rate hike briefly climbed to just under 70%, while the benchmark U.S. 10-year Treasury yield closed at 4.80% on the 1st, reaching its highest level since January 2025. This dynamic encourages continuous yen selling and dollar buying as the interest rate differential remains wide.
Central Bank and Ministerial Reactions to Foreign Exchange Movements
Bank of Japan Governor Kazuo Ueda declined to comment on discussions with U.S. Treasury Secretary Bessent or the upcoming September monetary policy meeting during a joint press conference following the G20 finance ministers gathering in Asheville, North Carolina. Meanwhile, BOJ Policy Board member Hajime Takata stated that 2026 requires greater emphasis on upside inflation risks, urging flexible monetary policy without fixed intervals for rate hikes while considering exchange rate effects. Finance Minister Katayama confirmed he met with Fed Chair Warsh to discuss growth and fiscal sustainability, adding that the G20 meetings provided a framework for coordinated intervention discussions and that authorities will monitor the currency with a high level of vigilance.
Broader Currency Moves and Global Economic Data
The yen also declined against the euro, trading at 185.69 to 185.72 yen at 8:30 a.m., a 19-sen depreciation. The euro itself edged down against the dollar at $1.1591 to $1.1592. Elsewhere in the Asia-Pacific region, the Reserve Bank of New Zealand raised its policy rate from 2.50% to 2.75% to return inflation to 2%, and Australia reported April–June 2026 GDP growth of 2.1% year-on-year, exceeding market forecasts.
Frequently Asked Questions
Why is the Japanese yen weakening against the dollar?
The yen is pressured by a combination of surging crude oil prices that threaten Japan’s trade balance and rising U.S. Treasury yields driven by expectations of earlier Federal Reserve rate hikes.
What level is the dollar-yen trading at in Tokyo?
The dollar-yen pair has hovered in the lower 160 range, moving between 160.13 and 160.39 yen during morning trading sessions.
How are Japanese authorities responding to the currency depreciation?
Finance Minister Katayama stated that the government will monitor exchange rate developments with a high level of vigilance, while BOJ officials emphasized the need to remain flexible regarding inflation risks and policy adjustments.
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