Yen Heads for Biggest Weekly Drop Since May Amid Tokyo Support Pledges
The yen is on course for its biggest weekly drop since May, despite Tokyo's pledges to stabilize the currency. The yen has fallen to new 40-year lows against the dollar, and verbal efforts to support it have had limited effect.
Analysts believe that even intervention by policymakers would only buy them some extra time, as the structural forces weighing on the currency remain in place unless the Bank of Japan raises rates more quickly. The U.S. Treasury Department has joined calls for rate hikes by the BOJ, warning against excessive currency volatility.
The yen's weakness has left the dollar poised for a weekly gain of 0.88 per cent, its biggest rise since May. Christian Antúnez, global fixed income and FX associate at Lazard Asset Management, expects the yen to weaken over the medium term, citing fundamentals-driven forces that intervention cannot overcome.
The escalating Middle East conflict has revived concerns about energy-driven price pressures, which have contributed to the dollar's strength. Oil prices topped $100 a barrel this week for the first time in nearly two months, while Federal Reserve Chair Kevin Warsh has reiterated the central bank's commitment to bringing inflation down to its 2 per cent target.