The Numbers
The dollar rose around 0.15% against the yen in Asian trading to ¥159.46, up from an opening level of ¥159.26, after touching a session low of ¥159.20.
It caps a weak stretch for the Japanese currency. The yen lost 0.4% on Monday, managed a gain of less than 0.1% on Tuesday, and resumed its slide on Wednesday.
The US Dollar Index added 0.1%, its third straight session of gains against a basket of global currencies.
Why the Dollar Keeps Winning
Two forces are working in the dollar's favor.
The first is geopolitics. Negotiations between the United States and Iran over reopening the Strait of Hormuz remain stuck, with reports of persistent disagreements over how international shipping should be regulated and what security guarantees would govern the waterway. That uncertainty keeps investors parked in the dollar as a safe haven.
The second is the calendar. Key US inflation data for July land later today, and markets expect the report to provide crucial clues about whether the Federal Reserve raises interest rates this year.
Hormuz: A Crisis With Many Moving Parts
The diplomatic picture around the strait shifted on several fronts:
Pakistan signaled progress toward a US-Iran agreement, even as both Washington and
Tehran continue to demand compensation from each other
Iran repeated that the strait stays closed unless the United States meets its conditions, a tougher negotiating posture
Pakistan's interior minister arrived in Tehran for talks with senior Iranian officials
Qatar's Foreign Ministry said negotiations between Oman and Iran have reached an advanced stage
US forces opened fire on a Panama-flagged vessel attempting to breach the blockade on Iranian ports
The tension is feeding through to energy markets. Oil prices rose more than 1% on Wednesday, a third straight session of gains, approaching two-week highs on renewed concerns about Middle East energy supplies.
The Bank of Japan Factor
The yen's slide comes even as expectations build for a Japanese rate hike. A summary of opinions from the Bank of Japan's July meeting, released Monday, showed at least three of the nine board members believe the central bank can raise rates faster than it has so far.
Markets have taken notice. Pricing for a 25-basis-point hike in September has climbed from 80% to 85%. Investors are now waiting on fresh Japanese data covering inflation, unemployment and wages to firm up those bets.
For now, though, the pull of the dollar is outweighing the prospect of tighter Japanese policy.
What Comes Next
Today's US inflation report is the pivot point. A hot reading would reinforce the case for Fed rate hikes and likely push the yen to fresh lows. A softer-than-expected number could give the Japanese currency room to recover from its two-week trough, especially with a September Bank of Japan hike increasingly priced in.
Until the Hormuz standoff resolves, the safe-haven bid under the dollar is unlikely to fade.
FAQ
Why is the yen falling?
Investors are favoring the US dollar as a safe haven amid the Strait of Hormuz standoff and ahead of key US inflation data, pushing the dollar to ¥159.46, its highest since July 31.
Will the Bank of Japan raise interest rates?
Markets now price an 85% chance of a 25-basis-point hike in September, up from 80%, after several board members backed a faster pace of tightening.
How is the Hormuz crisis affecting markets?
It is boosting the dollar and oil prices. Crude rose more than 1% on Wednesday, nearing two-week highs on energy supply concerns.
What could turn the yen around?
A weaker-than-expected US inflation reading for July could let the yen recover from its two-week low.
