Yen Hits 7-Month High as Dollar Weakens; Oil Nears $100 on Mideast Tensions

The Japanese yen rallied to a near seven-month high on Wednesday, pushing the U.S. dollar to a two-week low as traders anticipated a policy shift from the Bank of Japan. Meanwhile, global oil prices climbed toward $100 a barrel amid escalating geopolitical tensions in the Middle East, reigniting inflation concerns.

Yen and Dollar Diverge Ahead of Central Bank Meetings

The dollar fell against the yen to trade around 153.65, after the Japanese currency hit its strongest level since February at 152.89 on Tuesday, according to Investing.com. The yen has gained approximately 4% against the dollar so far in September. This strength reflects growing market expectations for the Bank of Japan to tighten its monetary policy and potential repatriation of funds by Japanese investors.

The U.S. Dollar Index, which measures the greenback against a basket of currencies, hovered near a two-week low at 98.15. Investor focus is now squarely on key U.S. inflation data due Friday, the final major report before the Federal Reserve's policy meeting next week, which is immediately followed by the Bank of Japan's own meeting.

Oil Prices Surge on Geopolitical Risk

Concerns over energy supply disruptions pushed Brent crude futures up 1.5% to $99.37 per barrel. The rise in oil prices follows an escalation of conflict in the Middle East, including reported attacks by Iran-backed Houthi militants on Saudi cities and U.S. military action against Iranian oil tankers.

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The prolonged conflict is fueling concerns that elevated energy costs could keep global inflation persistently high, complicating interest rate decisions for central banks worldwide.

Focus on Bank of Japan Policy Shift

The yen's sharp appreciation is largely fueled by market bets that the Bank of Japan will raise interest rates by 25 basis points at its meeting on September 17-18. The move would mark a significant pivot from its long-standing ultra-loose monetary policy.

This comes after Japan spent a reported ¥15.4 trillion (approximately $96.4 billion) over the past month to support its currency. Data showed that Japan's holdings of overseas securities fell by a record $87.8 billion in August, suggesting the intervention was funded by liquidating foreign assets. This has raised concerns among some U.S. officials about the potential for Japan to sell U.S. Treasuries, which could put upward pressure on American bond yields.