Yen hovers around 150 as concerns over the Middle East grow

23 Oct 2023 , 10:10 AM

Asia’s attention was drawn to Japan’s yen on Monday, as it fluctuated around the 150-per-dollar mark in a conflict between traders anticipating additional increases in dollar yields and those who thought the Japanese government would step in to stabilize the currency.

Concerns over the Middle East conflict are intensifying as the United States deploys more military forces to the region and Israel launches an airstrike on Gaza early on Monday, extending a two-week bombardment that started after the Islamist group Hamas attacked southern Israeli communities on October 7.

As investors braced themselves for a meeting of the European Central Bank and the release of U.S. GDP statistics later in the week, U.S. Treasuries were quiet. Since Federal Reserve Chair Jerome Powell said that tighter financial conditions might be warranted given the strength of the U.S. economy and tight labour markets, ten-year rates briefly fell above 5% last week.

The euro fell 0.07% to $1.0586 while the dollar index increased by 0.02% to 106.19.

Following a brief dip early on Monday to 150.14—a level last seen on October 3—when traders believed the Bank of Japan had intervened to push it towards the stronger side of 150—the Japanese yen last traded at 149.83 per dollar.

A further increase in the long end of the US Treasury curve, which is being fueled by term premiums that are expanding due to predictions of faster growth and fiscal slippage, is another concern among investors.

Following the release of two American hostages by Hamas from Gaza on Friday, oil prices fell, raising expectations that the issue will defuse without spreading to the rest of the Middle East and sabotaging oil supplies. Although down 0.6% at $91.55 a barrel, Brent crude futures have nevertheless increased 10% in the last ten days.

Thursday is the ECB meeting day. Its rate hiking cycle is over, according to all 85 economists polled by Reuters, but it won’t be until at least July 2024 before it begins easing as the battle against elevated inflation continues.

In September, the European Central Bank (ECB) increased the deposit rate by 25 basis points to 4.00% and the refinancing rate by 4.50%. However, the ECB hinted that this would be the final hike in a 14-month period.

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