In New York foreign exchange trading on the 24th, the yen ended the session virtually unchanged from the previous day at ¥163.80-90 per dollar. During the trading day, “crisis-driven dollar buying” continued against the backdrop of concerns over a large-scale US attack on Iran, pushing the pair up to ¥163.88 at one point. However, following reports that Pakistan is exploring a pathway toward resuming talks between the United States and Iran, the surge in crude oil prices paused, and the momentum behind dollar buying receded alongside a decline in long-term interest rates.
The market’s focus is gradually shifting from the “largest-ever” attack on Iran hinted at by President Trump the previous day toward a potential diplomatic resolution. In addition to reports of Pakistan’s mediation efforts, information that the US and UK are advancing discussions on ensuring the safety of maritime navigation in the Strait of Hormuz eased concerns about disruptions to Middle East energy supplies. As a result, the front-month September contract for WTI crude oil futures settled 3% lower at $89.31 per barrel, temporarily alleviating excessive caution regarding the negative impact of high oil prices on Japan’s economy.
US economic indicators released in the morning were robust. The preliminary July Composite Purchasing Managers’ Index (PMI) came in at 53.6, exceeding the market forecast of 52.2 and improving from June’s 51.9. In particular, the Services PMI showed significant expansion at 53.6, far surpassing the expected 51.5. Additionally, new home sales for June reached an annualized rate of 628,000 units, beating the estimate of 607,000. These figures briefly gave dollar buying the upper hand, but the decline in crude oil prices and lower long-term yields offset that trend.
The results of the major economic indicators are as follows:
| Economic Indicator | Actual | Forecast | Previous |
|---|---|---|---|
| July Manufacturing PMI (Preliminary) | 53.8 | 54.4 | 53.9 |
| July Services PMI (Preliminary) | 53.6 | 51.5 | 51.2 |
| July Composite PMI (Preliminary) | 53.6 | 52.2 | 51.9 |
| June New Home Sales (Annualized, 10k units) | 62.8 | 60.7 | 61.8 |
Uncertainty over the Middle East outlook remains deeply entrenched in the market. James Knightley of ING noted, “The dollar is likely to remain strong until the US and Iran agree to extend a ceasefire and energy prices stabilize.” Indeed, according to the “FedWatch” tool, which predicts policy rates based on movements in US interest rate futures, the probability of a rate hike at the July FOMC meeting stands at just under 40%, with persistent rate hike expectations serving as a factor capping the yen’s upside.
Key monetary policy events are scheduled for next week. The Bank of Japan will hold its monetary policy meeting on the 30th-31st, while the Federal Reserve will convene the FOMC on the 28th-29th. A hold on policy rates is widely anticipated for both, but some market participants suggest that “given the recent yen depreciation, a hawkish tone from the Bank of Japan could potentially support the yen.”
Meanwhile, the euro-dollar pair fell to $1.1365 before rebounding to $1.1390, ultimately settling at $1.1368. President Trump’s warning that he would impose substantial tariffs on imports from the European Union in retaliation for fines levied against US companies capped the euro’s upside. The euro-yen cross rose to ¥186.44 before dipping to ¥186.23. The pound-dollar pair climbed from $1.3306 to $1.3349, while dollar-Swiss franc advanced from 0.8163 francs to 0.8185 francs.
At a post-cabinet press conference on the 24th, Japan’s Finance Minister Satsuki Katayama reiterated her warning on currencies, stating, “We will respond appropriately at any time as needed. We will take resolute action decisively.” However, the market reaction was limited, as the remarks were perceived as largely consistent with her previous statements.
In the prior day’s New York session on the 23rd, the yen briefly fell to ¥163.99 following President Trump’s suggestion of a massive attack on Iran, marking the weakest level for the Japanese currency in approximately 39 years and 8 months, since November 1986. Reports of an attack on a Saudi tanker by Yemen’s pro-Iran Houthi rebels also circulated, sending crude oil futures temporarily surging into the $92-per-barrel range. This momentum carried into the Tokyo session on the 24th, where the dollar-yen pair continued to trade in the upper 163 range, but caution over potential currency intervention ahead of the ¥164 threshold kept gains in check.
finance.biggo.com