Japanese Yen Nears Seven-Month High as Oil Approaches $100

The Japanese yen held near its strongest level since February on Wednesday, pressuring the U.S. dollar as escalating Middle East tensions pushed oil prices toward $100 a barrel and investors prepared for major central bank decisions.

Brent crude futures climbed more than 1% to around $99 per barrel after the conflict widened. Iran-backed Houthis launched attacks on several Saudi Arabian cities, while U.S. forces struck Iranian oil tankers and Tehran targeted an American base in Jordan.

Higher energy prices have added uncertainty ahead of Friday’s U.S. inflation report, which could influence the Federal Reserve’s interest rate decision next week. The Bank of Japan is also scheduled to meet on September 17-18, while the European Central Bank is widely expected to raise interest rates on Thursday.

The dollar index slipped to 98.75, hovering near its lowest level in almost two weeks. The euro remained steady at $1.1631, while the British pound traded around $1.3546.

The yen strengthened to about 153.33 per dollar, remaining close to Tuesday’s seven-month high of 152.89. Japan’s currency has gained roughly 4% this month and has also advanced against the euro, sterling, Mexican peso and Turkish lira.

Expectations of tighter Bank of Japan monetary policy have supported the yen rally. Traders widely anticipate a 25-basis-point rate hike at the BOJ’s September meeting, with attention likely to focus on Governor Kazuo Ueda’s guidance about future policy.

The yen’s rapid appreciation is also affecting carry trades, where investors borrow cheaply in Japan to invest in higher-yielding currencies and assets. Expectations that Japanese investors could repatriate overseas funds have provided additional support.

However, the yen still faces potential headwinds from strong U.S. economic data, elevated oil prices and concerns about Japan’s government debt. The Federal Reserve’s rate outlook could also determine whether the currency extends its gains.

Elsewhere, the Australian dollar rose to $0.72265 and the New Zealand dollar advanced to $0.5862. China’s yuan traded near a three-and-a-half-year high against the dollar, supported by stronger-than-expected inflation figures and accelerating export growth.