Japan Yen Slides Past 163 as Middle East Tensions Lift US Dollar, Oil Prices

The Japanese yen weakened beyond the 163-per-dollar level on Wednesday, hovering near its weakest point since 1986 as higher U.S. Treasury yields and rising oil prices boosted demand for the U.S. dollar. Investors also remained alert for any signs of intervention from Japanese authorities to stabilize the currency.

The U.S. Dollar Index edged lower to 101.15 after climbing above the 101 mark overnight, supported by renewed geopolitical tensions in the Middle East and stronger Treasury yields. The dollar also gained against several Asian currencies as concerns over global energy supplies intensified after U.S. forces carried out an 11th straight night of strikes against Iran, while Yemen’s Iran-backed Houthis threatened to disrupt shipping routes.

The USD/JPY pair climbed as high as 163.24, the first move above 163 since 1986, despite Japan unveiling its long-term economic growth strategy. Prime Minister Sanae Takaichi’s "Honebuto no Hoshin" plan aims to generate more than JPY370 trillion ($2.3 trillion) in combined public and private investment through fiscal 2040 to lift Japan’s long-term growth rate above 1%.

The strategy also reaffirmed the Bank of Japan’s independence, easing concerns that fiscal expansion could delay future interest-rate hikes. DBS strategist Wei Liang Chang said the commitment to central bank independence should help anchor the yen, adding that Japan’s bond market has largely priced in the government’s fiscal plans.

Elsewhere in Asia, oil-importing economies remained under pressure from higher crude prices, which typically worsen trade balances and increase imported inflation. The Indonesian rupiah, Thai baht, Indian rupee and Malaysian ringgit all weakened against the U.S. dollar.

South Korea’s won outperformed several regional peers as investors welcomed Seoul’s roadmap to internationalize the currency. Proposed reforms include creating an offshore won market, expanding 24-hour foreign exchange trading and easing currency regulations. Analysts also expect narrowing U.S.-South Korea interest-rate differentials, stronger semiconductor exports and improving capital flows to support the won later this year.

Meanwhile, the Australian and New Zealand dollars traded in narrow ranges, with the kiwi holding recent gains after stronger inflation data reinforced expectations of a Reserve Bank of New Zealand rate hike in September. Investors are now focused on the Bank Indonesia policy decision, followed by upcoming European Central Bank, Bank of Japan and Federal Reserve meetings as markets assess the inflationary impact of elevated energy prices.