Yen rallies as over-US$100 oil rattles greenback

The Japanese yen surged to seven-month highs against the US dollar on Wednesday (Sep 9) as oil prices breached the US$100 mark amid rising tensions in the Middle East. The conflict saw Iranian-backed Houthis strike Saudi Arabian cities, prompting American forces to target Iranian oil tankers and an Iranian base in Jordan. Brent crude futures jumped nearly 3%, peaking above US$100 for the first time since late July, causing global markets to falter ahead of US inflation data release on Friday, which will influence central bank meetings in the US and Japan.

The US dollar declined slightly, though analysts attributed this to the yen's rapid rise over the past week and investor positioning ahead of upcoming central bank meetings. The euro gained 0.18% to US$1.1641, nearing a two-week high, ahead of a possible European Central Bank rate hike on Thursday. OCBC strategists believed the Middle East escalation kept US Federal Reserve policy implications centered on energy prices, especially after last week's strong US payrolls report reignited rate hike expectations.

The dollar index, tracking the US currency against six others, neared its lowest in almost two weeks. The yen's 4% rise this September shifted the calculus for the popular carry trade, where investors borrow in yen at low cost to invest in other currencies and assets offering better returns. Fed Governor Kazuo Ueda's hawkish comments and anticipation of a 25 basis point rate hike at the Bank of Japan's Sep 17-18 meeting fueled the yen's rally.

Treasury Secretary Scott Bessent challenged traders to bet against the yen, following a joint US-Japanese intervention in late July to shield the currency from selling US Treasuries by Tokyo.