Yen near weakest level since 1986

The USD/JPY pair gained 0.5% to 163.24 per dollar overnight, sliding past 163 per dollar for the first time since 1986

The yen retreated beyond 163 per U.S. dollar on Wednesday, hovering near its weakest level since 1986 as elevated oil prices underpinned the dollar, while investors remained alert for signs of official intervention from Tokyo.

Most other Asian currencies traded in muted ranges as investors weighed the latest escalation in the Middle East, where attacks continued, keeping concerns over international energy supplies elevated.

The USD/JPY pair gained 0.5% to 163.24 per dollar overnight, sliding past 163 per dollar for the first time since 1986.

The move came even as investors assessed Prime Minister Sanae Takaichi’s economic policy blueprint, which targets more than JPY370 trillion ($2.3 trillion) of public and private investment through fiscal 2040 in a bid to lift Japan’s long-term growth rate above 1%.

The plan also reaffirmed the Bank of Japan’s policy independence despite the government’s expansionary fiscal agenda, easing concerns that policymakers could face pressure to delay further monetary tightening.

We believe the affirmation should temper speculation that the BOJ could hesitate on rate hikes to support the government’s growth agenda, and thus help anchor the yen, said Wei Liang Chang, FX and Credit Strategist at DBS, adding that stable Japanese government bond yields suggest markets have largely priced in the government’s fiscal policy shift.

Higher crude prices have emerged as a key headwind for Asia’s largely oil-importing economies, as rising energy costs typically worsen trade balances, lift imported inflation and weigh on investor confidence.

Oil-sensitive Southeast Asian currencies remained under pressure. The USD/IDR pair jumped 0.3%, the USD/THB pair added 0.4%, and the USD/INR pair rose 0.2%, while the USD/MYR pair gained 0.3%.

The USD/KRW pair advanced 0.2% to 1,483.67 won, although the unit continued to outperform several peers as investors assessed South Korea’s roadmap to internationalise the currency. In the last six-months, the won has gained 1.5% against the U.S. unit.

The USD/AUD pair was little changed at 0.7001, while the USD/NZD pair held steady at 0.5827 after the kiwi rallied in the previous session on stronger-than-expected inflation data that reinforced expectations for a Reserve Bank of New Zealand rate hike in September.

Investors now turn their attention to Wednesday’s Bank Indonesia and other central bank’s policy decision, as markets gauge whether higher energy prices could complicate the international inflation outlook.