Dollar-Yen Poised to Break Above 160 as Oil Prices Surge

The dollar-yen pair is poised to test the psychologically important 160 level as crude oil prices surge amid escalating Middle East tensions.

The view that higher oil prices translate into yen-selling pressure through a widening of Japan's trade deficit is gaining traction, with market participants arguing that expectations for Bank of Japan rate hikes alone cannot contain this trend.

Takuya Kanda, senior FX analyst at Gaitame.com Research Institute, set a dollar-yen forecast range of 158.500 to 160.200 in his morning currency outlook on the 18th.

The Bank of Japan is reportedly considering raising rates to 1.25% as early as the September 17-18 monetary policy meeting to address upside risks to inflation, but market consensus holds that the yen-buying effect of rate hike expectations remains limited in the face of rising oil prices and a widening trade deficit.