Yen Hits Seven-Month High as Oil Surge Rattles Markets

The Japanese yen climbed to its strongest level in seven months on Wednesday, keeping the dollar under pressure as oil prices surged past $100 a barrel amid escalating conflict in the Middle East.

Brent crude futures rose nearly 3%, crossing the $100 mark for the first time since late July. The spike followed fresh attacks by Iranian-backed Houthi forces on Saudi Arabian cities, US strikes on Iranian oil tankers, and a reported Iranian attack on a US base in Jordan.

The dollar index, which measures the greenback against six major currencies, slipped close to its lowest in almost two weeks. The euro edged up 0.18% to $1.1641, nearing a two-week high ahead of an expected rate hike from the European Central Bank.

Yen's rapid ascent

The yen has risen 4% this month, driven by expectations of faster tightening by the Bank of Japan (BOJ). The currency strengthened against most peers, including the euro, pound, and popular carry-trade targets like the Mexican peso and Turkish lira.

Traders widely expect the BOJ to raise rates by 25 basis points at its September 17-18 meeting. However, the rally's sustainability may depend on whether Governor Kazuo Ueda delivers hawkish signals.

US Treasury Secretary Scott Bessent on Tuesday challenged traders to bet against the yen, referencing recent joint US-Japanese intervention to support the currency. Analysts noted Washington's interest in protecting its Treasury market and supporting the yen.

Fed and other currencies

Market attention is also on the Federal Reserve, with odds of a rate hike next week now around 60%. US inflation data due Friday is expected to shape the outlook.

Elsewhere, the Canadian dollar held steady despite new US import bans on Canadian goods including alcohol, motorcycles, and dairy products. China's yuan traded near 3-1/2-year highs, supported by stronger-than-expected inflation data and faster export growth.