Yen Near Weekly Lows as Weak Data Dents BoJ Hike Hopes

Key Moments

USD/JPY Holds Recovery as Markets Wait for NFP

USD/JPY is pausing after this week’s strong rebound from the 155.25-155.20 zone. That area marked its lowest level since May after coordinated US-Japan intervention. The pair is now hovering near its weekly high around the mid-158.00s. However, traders are avoiding large positions before the US Nonfarm Payrolls report.

The upcoming jobs report could shape expectations for the Federal Reserve’s next policy move. As a result, it may drive fresh demand for the US Dollar and determine USD/JPY’s next direction. Meanwhile, geopolitical tensions, higher oil prices, and expectations of additional Fed rate hikes continue to support the greenback.

Middle East Tensions and Oil Prices Bolster the Dollar

Middle East developments are also supporting the US Dollar. Saudi Arabia said intelligence suggests Iraqi militias, working with Yemen’s Houthi movement, are preparing an imminent attack on the kingdom. In addition, Iranian state media reported a framework to manage traffic through the Strait of Hormuz. The proposal would block US, Israeli, and other hostile vessels until compensation is paid.

These developments could derail efforts to end the five-month US-Iran conflict through diplomacy. Consequently, crude oil prices rose overnight. Investors also worry that higher energy costs could fuel inflation. If that happens, major central banks, including the Fed, may keep interest rates higher for longer.

As a result, US Treasury yields have moved higher, giving the US Dollar another boost. In contrast, the Japanese Yen remains under pressure from weak domestic fundamentals and growing geopolitical risks.

Weak Japanese Spending Data Weighs on Yen and BoJ Outlook

The Japanese Yen faces additional pressure from concerns over Japan’s public finances. At the same time, investors fear the Middle East crisis could weigh on the country’s economy. The latest household spending data added to those concerns.

Japan’s Ministry of Internal Affairs reported that Overall Household Spending fell 3.3% from a year earlier in June. Economists had expected a 1% increase. Moreover, the decline marked the seventh consecutive monthly contraction. The weak figures point to soft domestic demand and reduce the chances of a Bank of Japan rate hike in September. Therefore, the data continue to weigh on the Yen while supporting USD/JPY.

Household Spending Indicator Snapshot

The Ministry of Internal Affairs and Communications publishes the Overall Household Spending indicator each month. It measures total household spending and offers a useful view of consumer confidence and economic activity. Generally, stronger readings support the Japanese Yen, while weaker results tend to weigh on the currency.