Yen Weakness Spurred by Trade Demand, Not Speculation

The yen is approaching the 160-per-dollar level, driven by real demand for trade settlement rather than speculative activities. According to recent data, import prices have been rising quickly, with a 30% increase from last year's levels. This has led to a record high in imports for Japan, contributing to a trade deficit for three consecutive months.

The surge in energy prices due to the Iran situation is expected to accelerate further, putting additional pressure on the yen. Consumer-price data shows that higher crude oil and naphtha costs are beginning to impact food and durable-goods prices. The joint US-Japan intervention aimed at buying the currency has failed to hold gains.

Critics argue that foreign-exchange intervention alone may not be enough to stop the yen's weakness, as corporate trade settlement continues regardless of exchange-rate levels. Breaking the cycle of yen weakness and imported inflation will require Japan to address its structural problems, including its dependence on energy imports.