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Japanese Yen remains pinned near 40-year low as Fed-BoJ rate gap keeps carry trade active

  • USD/JPY consolidates the previous day’s strong gains amid looming intervention risks.
  • The wide US-Japan rate differential holds back the JPY bulls from placing aggressive bets.
  • US-Iran tensions and Fed rate hike expectations favor USD bulls, supporting spot prices.

The USD/JPY pair edges lower on Friday as bulls turn cautious in anticipation of a potential government intervention to prop up the Japanese Yen (JPY). Nevertheless, spot prices remain within striking distance of the four-decade high, touched on Thursday, and the 164.00 mark amid a supportive fundamental backdrop.

A stark contrast in monetary policy between Japan and the rest of the world keeps the so-called carry trade active, which might continue to undermine the JPY. Despite the recent Bank of Japan (BoJ) rate hike to 1%, or the highest since 1995, borrowing costs in Japan remain exceptionally low relative to other major economies, including the US. Furthermore, economic risks stemming from energy supply disruptions due to the Middle East conflict contributed to the JPY’s relative underperformance.

The US military announced that it has completed another round of strikes against Iran on Thursday, marking the 13th straight night of operations. Meanwhile, Iran and its allies launched retaliatory strikes against US-linked military assets in Kuwait, Bahrain and Jordan. Adding to this, Iran-aligned Houthis extended the Middle East war to a second major shipping chokepoint and struck two Saudi oil tankers in the Red Sea, describing the action as part of a naval blockade against Saudi Arabia.

This comes on top of the closure of the Strait of Hormuz and further exacerbates supply disruption concerns, lifting crude oil prices to a fresh high since June 11 on Thursday. Investors remain worried that elevated energy prices will rekindle inflationary pressure and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. Moreover, data showed on Thursday that US Jobless Claims fell to the lowest level since September 1969, pointing to a resilient labor market.

This reaffirmed market expectations that the US central bank will raise borrowing costs by the end of this year, which favors the US Dollar (USD) bulls and backs the case for the emergence of dip-buying around the USD/JPY pair. Traders, however, seem hesitant and opt to move to the sidelines ahead of the highly anticipated FOMC policy meeting next week. Nevertheless, spot prices remain on track to register strong weekly gains for the third straight week and seem poised to climb further.

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.39%0.99%0.87%0.45%-0.33%0.83%0.99%
EUR-0.39%0.61%0.43%0.06%-0.71%0.44%0.59%
GBP-0.99%-0.61%-0.17%-0.54%-1.30%-0.16%0.03%
JPY-0.87%-0.43%0.17%-0.32%-1.14%-0.09%0.22%
CAD-0.45%-0.06%0.54%0.32%-0.74%0.24%0.58%
AUD0.33%0.71%1.30%1.14%0.74%1.16%1.35%
NZD-0.83%-0.44%0.16%0.09%-0.24%-1.16%0.20%
CHF-0.99%-0.59%-0.03%-0.22%-0.58%-1.35%-0.20%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

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Philippine Peso Nears Fresh Record Low

The Philippine peso weakened to around 61.84 per US dollar in late July, moving closer to a fresh record low as surging oil prices and broad US dollar strength weighed on the currency. Crude prices have jumped more than 30% this month as the escalating US-Iran conflict spilled over into key other shipping routes, heightening concerns over deeper disruptions to global energy supplies. This has intensified pressure on oil-importing economies, including the Philippines, raising concerns over imported inflation and the country’s trade balance. The Bangko Sentral ng Pilipinas intervened in the foreign exchange market this week to support the peso, while the Marcos administration expressed confidence that the central bank would act decisively if needed. Fitch Group’s BMI Research forecasts the peso to trade within the 61–63 per US dollar range this year, making it one of Asia’s weakest-performing currencies. The peso has fallen nearly 5% against the US dollar so far this year.

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United States Dollar Index holds gains near 101.50 on revival of hawkish Fed bets

  • The US Dollar Index holds gains near 101.50 on the resurgence of Fed’s interest rate hike prospects.
  • Surging oil prices have revived hawkish Fed bets.
  • US President Trump warns of major military punishment to Iran and Houthis.

The US Dollar (USD) clings to the previous day’s gains in the Asian session on Friday, as surging oil prices due to intensified Middle East energy supply risks have revived Federal Reserve (Fed) interest rate hike expectations.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near an over three-week high at 101.50.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.43%1.05%0.92%0.45%-0.13%0.98%1.08%
EUR-0.43%0.63%0.43%0.02%-0.53%0.57%0.64%
GBP-1.05%-0.63%-0.22%-0.62%-1.17%-0.06%0.05%
JPY-0.92%-0.43%0.22%-0.38%-0.99%0.00%0.25%
CAD-0.45%-0.02%0.62%0.38%-0.54%0.39%0.66%
AUD0.13%0.53%1.17%0.99%0.54%1.10%1.23%
NZD-0.98%-0.57%0.06%-0.01%-0.39%-1.10%0.13%
CHF-1.08%-0.64%-0.05%-0.25%-0.66%-1.23%-0.13%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

In the Asian trade, the WTI Oil price trades 0.5% lower to near $90.60, but is close to its over six-week high of $92.25 posted on Thursday. Higher oil prices boost inflation expectations, a scenario that discourages Fed officials from considering loose monetary conditions.

The closure of the Bab el-Mandeb Strait, along with the Strait of Hormuz, has disrupted 27% of global energy supply.

Meanwhile, no signs of a diplomatic breakthrough between the US and Iran indicate that supply shocks could last long. On Thursday, US President Donald Trump said that Washington would hold Iran responsible for the Yemen-based Houthis’ actions and warned that Iran and its Houthi allies would both soon receive a “major military punishment”.

According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the policy meeting next week stand at 35.8%, significantly higher from 11.8% recorded last week. Fed’s interest rate hike prospects were similar to the current state a month ago, but they eased later after the release of the soft US Consumer Price Index (CPI) data for June.

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Chart of The Day – No changes in the Far East, USD/JPY Hits New Highs

USD/JPY is breaking out to new 40-year highs above 163.30 , and the market is signalling that the acceleration in the pace of the BOJ’s rate rises is already largely priced in.

Traffic conditions on the D1

The price has broken through the previous resistance level of 163.00 (purple line) and is reaching new highs in the 163.30–163.40 range, whilst the RSI (14) remains in a strong uptrend at around 69.4, close to the overbought zone. The candlesticks are holding above the EMA50 (161.32), EMA100 (160.13) and EMA200 (158.12), and the EMA configuration (rising, in the order 50 > 100 > 200) confirms a strong bullish trend. The price is close to the upper Bollinger Band (163.92), which signals strong momentum but also the risk of a short-term correction before the next attempt to break through the resistance at 164.00.

Why do the markets already price in faster BOJ rate rises?

The OIS (overnight index swap) market for 22 July 2026 implies a rate of 0.981 per cent, compared with an effective rate of 0.977 per cent, whilst contracts up to the 18 December meeting are already pricing in a rise to 1.277 per cent – effectively discounting approximately 1.2 rate rises in full. This means that reports of the BOJ’s readiness to accelerate the pace of rate rises come as no surprise to the market – investors began pricing in a more aggressive cycle well ahead of the consensus among economists.

This is also confirmed by the table of 1-month price changes: the cumulative change (“Total Change 1M”) for Japan is zero, which indicates that the market is no longer revising its forecasts upwards, but is instead stabilising following the earlier movement – the “faster pace” is, to a large extent, already behind us in terms of prices. Source: Bloomberg Financial LP

Carry trade remains dominant despite rate rises

The interest rate differential between Japan (1.00%, following a rise to a 31-year high) and the effective US rate (3.63%) remains huge, and the two-year US-Japan yield spread has widened to 285 basis points – its widest level since August last year. Even a potential further 25 bp rate rise would do little to reduce the appeal of this spread, which is fuelling carry trades based on the low cost of yen-denominated financing relative to high-yielding currencies such as the BRL, MXN and AUD.

The fundamental ‘loop’ driving the yen’s weakness

Apart from monetary policy, the yen is suffering from a ‘doom loop’ – Prime Minister Sanae Takaichi’s loose fiscal policy (debt-to-GDP ratio over 200 per cent) combined with the BOJ’s insufficiently tight monetary policy, which is pushing the yield on 10-year JGBs up to 2.90 per cent, the highest level in 30 years. Finance Minister Satsuki Katayama has once again signalled her readiness to take “decisive action” in the foreign exchange market, however, interventions to date (totalling around US$215 billion since 2022) have failed to reverse the trend of yen weakness on a sustained basis, which undermines the credibility of such announcements in the eyes of investors.

The options market confirms that there are no fears of a shock

The falling 1-month ATM implied volatility for USD/JPY since 2022, despite the deepening weakness in the spot market, suggests that options are not pricing in any significant risk of a sudden reversal – such as a sharp intervention or an unexpected rate hike – but rather a continuation of the current narrative regarding the currency. Source: Bloomberg Financial Lp

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United States Dollar Index struggles to lure buyers despite Iran tensions, Fed hike bets

  • DXY bulls refrain from placing aggressive bets and opt to wait for further geopolitical developments.
  • Rising oil prices fuel inflation fears and lift Fed rate hike bets, acting as a tailwind for the Greenback.
  • The supportive fundamental backdrop suggests that corrective pullbacks are likely to be bought into.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on a modest Asian session uptick on Monday and currently trades around the 100.80-100.75 region, nearly unchanged for the day. Meanwhile, the near-term bias seems tilted firmly in favor of bullish traders amid escalating US-Iran tensions and hawkish US Federal Reserve (Fed) expectations.

In the latest developments surrounding the Middle East crisis, the US launched a ninth straight night of strikes against Iran on Sunday after announcing the death of another American service member in Iraq. US President Donald Trump said that the latest strikes were being carried out in honor of US service members killed in recent days. In response, Iran fired ballistic missiles and one-way attack drones targeting sites in Bahrain, Jordan, Kuwait, and Iraq. This raises the risk of a broader regional war and prompts traders to continue pricing in the geopolitical risk premium, which, in turn, should benefit the US Dollar’s (USD) safe-haven status.

Meanwhile, crude oil prices have jumped to a fresh high since June 12 as the closure of the critical Strait of Hormuz, alongside the US naval blockade of Iranian ports, fuels concerns about more supply disruptions in the Middle East. This sudden spike in energy prices stokes fears of a reacceleration in global inflation, which might force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. According to the CME Group’s FedWatch Tool, traders are still pricing in the possibility of at least one interest rate hike by the Fed in 2026. This further validates the positive outlook for the USD and warrants some caution for bears.

Moving ahead, there isn’t any relevant market-moving economic data due for release from the US on Monday, leaving the buck at the mercy of comments from influential FOMC members. Apart from this, incoming geopolitical headlines might continue to infuse volatility in global financial markets and drive the USD demand. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the index remains to the upside, and any meaningful corrective pullback is more likely to be bought into.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.02%-0.05%-0.03%-0.09%-0.09%-0.13%0.07%
EUR-0.02%-0.04%-0.06%-0.13%-0.11%-0.18%0.05%
GBP0.05%0.04%-0.02%-0.07%-0.04%-0.12%0.07%
JPY0.03%0.06%0.02%-0.05%-0.05%-0.06%0.10%
CAD0.09%0.13%0.07%0.05%0.00%-0.01%0.14%
AUD0.09%0.11%0.04%0.05%-0.01%-0.03%0.17%
NZD0.13%0.18%0.12%0.06%0.01%0.03%0.17%
CHF-0.07%-0.05%-0.07%-0.10%-0.14%-0.17%-0.17%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

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GBP weakens below 1.3500 as US launches new wave of strikes against Iran

  • GBP/USD softens to near 1.3470 in Friday’s Asian session.
  • The US launched a new wave of strikes against Iran for a sixth day in a row.
  • Traders still ramp up their bets on BoE rate hikes this year.

The GBP/USD pair trades on a softer note around 1.3470 during the Asian trading hours on Friday. Geopolitical tensions in the Middle East trigger risk-off market sentiment and weigh on the Cable. The preliminary reading of the Michigan Consumer Sentiment Index for July is due later on Friday.

The United States (US) has carried out major strikes on Iran for the sixth day in a row. Officials in southern Iran’s Bandar Abbas reported that civilian infrastructure, including power facilities and a train station, has been hit.

The US Central Command (CENTCOM) said that the attacks were intended to “further degrade Iranian military capabilities” before saying it had boarded a vessel as part of its blockade of the strait. Earlier this week, US President Donald Trump threatened to strike Iran’s bridges and power plants if the country did not return to talks. Rising tensions in the Middle East could boost a safe-haven currency such as the US Dollar (USD) against the British Pound (GBP). 

Data released on Tuesday showed that US Consumer Price Index (CPI) inflation slowed in June, while data from Wednesday showed a decline in the Producer Price ‌Index (PPI). Traders are now pricing ‌in nearly a 55% chance that the Federal Reserve (Fed) will hike rates in September, according to the CME FedWatch Tool.

On the UK front, Bank of England (BoE) Governor Andrew Bailey said on Tuesday that he was concerned about the resumption of hostilities between the US ‌and Iran in recent days, but so far, there has been no big impact on the UK inflation outlook. Money markets are fully pricing in a BoE hike by the November policy meeting, with a second rate hike priced in by April 2027, according to Reuters.

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AUD moves away from three-week top as geopolitics and Fed hike bets lift USD

  • AUD/USD attracts some sellers for the second straight day amid a modest USD uptick.
  • Escalating US-Iran tensions, reviving inflation fears, and Fed hike bets underpin the buck.
  • The RBA’s relatively hawkish stance and steady data from China could support the AUD.

The AUD/USD pair remains on the back foot for the second straight day and slides to the 0.7980 region during the Asian session on Friday. Nevertheless, spot prices seem poised to register gains for the third week in a row and remain within striking distance of a nearly three-week high, touched on Wednesday.

The US Dollar (USD) looks to build on the previous day’s goodish recovery from a nearly one-month low amid a combination of supporting factors and exerts some downward pressure on the AUD/USD pair. Further escalation of tensions between the US and Iran keeps geopolitical risk in play. Furthermore, concerns about energy-driven inflation revive bets for a US Federal Reserve (Fed) rate hike in 2026 and underpin the safe-haven Greenback.

In the latest developments surrounding the Middle East crisis, the US stepped up its attacks on Thursday and carried out a sixth consecutive night of air strikes against Iran. The US also struck an empty oil tanker headed for Kharg Island as part of its renewed naval blockade of Iranian ports. Tehran responded by attacking US military facilities across the region, raising fears of a return to all-out war and triggering the global flight to safety.

Iran’s Islamic Revolutionary Guard Corps had threatened to expand the conflict by targeting additional regional energy supply routes. Furthermore, Reuters reported that Iran has asked Yemen’s Houthis to stand ready to close the Red Sea oil route, posing a potent new threat to global energy supplies. This remains supportive of elevated crude oil prices, fueling inflation fears and bolstering bets for at least one Fed rate hike by the year-end.

Market expectations were reaffirmed by Thursday’s upbeat US Initial Jobless Claims data and the Philly Fed Manufacturing Index. Adding to this, Dallas Fed President Lorie Logan called on Thursday for modestly higher interest rates to win a battle the central bank has been losing for the past five years. Separately, Fed Vice Chair Philip Jefferson said that he would be open to raising rates if inflation does not show near-term improvement.

The aforementioned fundamental backdrop favors the USD bulls and backs the case for a further depreciating move for the AUD/USD pair. However, the Reserve Bank of Australia’s (RBA) relatively hawkish stance, along with steady economic data from China, could lend support to the China-proxy Australian Dollar (AUD), warranting caution before placing aggressive bearish bets on the currency pair and positioning for deeper losses.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.00%0.07%0.03%-0.04%0.17%0.09%0.00%
EUR-0.01%0.07%0.00%-0.07%0.17%0.09%-0.01%
GBP-0.07%-0.07%-0.09%-0.14%0.09%0.03%-0.08%
JPY-0.03%0.00%0.09%-0.06%0.16%0.06%-0.01%
CAD0.04%0.07%0.14%0.06%0.22%0.14%0.04%
AUD-0.17%-0.17%-0.09%-0.16%-0.22%-0.09%-0.18%
NZD-0.09%-0.09%-0.03%-0.06%-0.14%0.09%-0.09%
CHF-0.00%0.01%0.08%0.01%-0.04%0.18%0.09%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

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Japanese Yen softens on renewed US-Iran tensions, Japan flags intervention risk

  • USD/JPY trades with mild gains around 162.40 in Friday’s Asian session. 
  • The US is carrying out major strikes on Iran for the sixth consecutive day, lifting the US Dollar. 
  • Japan’s Katayama said authorities are ready to act on currency moves whenever necessary. 

The USD/JPY pair posts modest gains near 162.40 during the Asian trading hours on Friday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) as the United States (US) launches a new wave of strikes against Iran for a sixth night in a row. Traders will keep an eye on the preliminary reading of the Michigan Consumer Sentiment Index for July later on Friday. 

The US Central Command (CENTCOM) said on Thursday that it launched a new wave of strikes against Iran for a sixth night in a row, per the BBC. The US military said that the attacks were intended to “further degrade Iranian military capabilities” before saying it had boarded a vessel as part of its blockade of the Strait of Hormuz.

Iran’s state media reported US missiles struck close to the island of Qeshm, near the strait, as well as in Bandar Abbas and Bushehr, the site of a nuclear power plant. Earlier this week, US President Donald Trump threatened to strike Iran’s bridges and power plants if the country did not return to talks. Renewed Hormuz hostilities could boost the Greenback against the JPY in the near term. 

Kyodo News Agency reported on Friday that the Japanese government will state in its economic blueprint that decisions on specific monetary policy tools should be left to the Bank of Japan (BoJ). A final version of the blueprint will also state that the government will reach a decision “by early August” on whether and by how much Japan will cut 8% consumption tax levied on food.

Traders remain on alert for possible intervention from Japanese officials. Japan’s Finance Minister Satsuki Katayama said on Friday that the authorities are ready to act on currency moves whenever necessary.