High Oil prices and wide rate differentials weigh on Japanese Yen

Japanese Yen weakness lifts USD/JPY, with robust US jobs figures underpinning the US Dollar.
The Yen faces continued pressure from high energy prices and Japan’s comparatively low interest rates.
US midterm elections, developments between the US and Iran, and forthcoming jobs figures remain on traders’ radar.

USD/JPY trades near 158.50 at the time of writing. The pair is up 0.37% on Tuesday, with the Japanese Yen (JPY) lagging its major peers and better-than-forecast US economic figures supporting the US Dollar (USD). Attention also centres on the US midterm elections and US-Iran developments, which continue to drive Oil price volatility.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

At 7.523 million, September’s US JOLTS Job Openings exceeded the 7.13 million forecast and increased from 7.19 million. After touching an intraday low of 101.63, the US Dollar Index (DXY) has recovered to around 101.90. The index measures the currency against six major peers.

Shifting headlines have sent Oil prices in both directions on Tuesday. A Wall Street Journal (WSJ) report of a US strike on Iran’s Qeshm Island initially pushed crude higher. Unconfirmed reports of concessions by Washington and Tehran on Iran’s nuclear programme and frozen funds then drove prices lower, before a partial rebound.

Despite ongoing diplomatic efforts, the absence of a clear way forward in US-Iran negotiations is keeping Oil prices high. Inflation risks stemming from energy costs strengthen expectations that the Federal Reserve (Fed) will raise interest rates further. Following a 25 basis points (bps) increase in September, the Fed held rates steady in October and reiterated its commitment to restoring price stability. According to the CME FedWatch Tool, traders assign a 75% probability to a further increase in December.

Expectations of additional Bank of Japan (BoJ) tightening have not relieved pressure on the Japanese Yen. Other major central banks also retain a hawkish stance because of the energy shock. Japan’s interest rates therefore remain relatively low against those of its peers, leaving the Yen at a yield disadvantage.

Heavy dependence on energy imports, especially Middle Eastern crude, leaves Japan more exposed. High Oil prices increase its import costs and could hamper economic growth.

With few Japanese economic releases scheduled for the remainder of the week, attention turns to US labour market figures. ADP Employment Change is due on Wednesday, ahead of Thursday’s Initial Jobless Claims and Friday’s Nonfarm Payrolls (NFP).

Japanese Yen: Today’s Currency Performance

Today’s percentage moves in the Japanese Yen (JPY) against the major currencies listed appear in the table below. Its strongest performance was against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.00%	-0.02%	0.33%	0.00%	0.27%	0.02%	0.36%
EUR	-0.01%		-0.03%	0.34%	-0.01%	0.26%	0.00%	0.34%
GBP	0.02%	0.03%		0.34%	0.02%	0.30%	0.03%	0.38%
JPY	-0.33%	-0.34%	-0.34%		-0.33%	-0.06%	-0.31%	0.03%
CAD	-0.01%	0.01%	-0.02%	0.33%		0.28%	0.02%	0.35%
AUD	-0.27%	-0.26%	-0.30%	0.06%	-0.28%		-0.25%	0.08%
NZD	-0.02%	-0.00%	-0.03%	0.31%	-0.02%	0.25%		0.34%
CHF	-0.36%	-0.34%	-0.38%	-0.03%	-0.35%	-0.08%	-0.34%

Percentage movements between the major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Japanese Yen on the left and following that row across to the US Dollar gives the percentage change for JPY (base)/USD (quote) in the corresponding cell.