THE Japanese yen fell to its weakest level against the US dollar in almost four decades as investors continued to favour the greenback amid expectations that the US Federal Reserve will maintain restrictive monetary policy for longer.
The yen briefly traded at around 161.90 against the US dollar during New York trading, its lowest level since December 1986, according to Japanese public broadcaster NHK.
The move came as the US Dollar Index (DXY) eased slightly to around 101.10 following profit-taking ahead of key US labour market data later this week. Despite the modest decline, the dollar remained close to recent highs, supported by resilient US economic activity, elevated Treasury yields and expectations that the Federal Reserve is unlikely to ease policy in the near term.
The widening divergence between US and Japanese monetary policy continued to weigh heavily on the yen, as the Bank of Japan's gradual approach to tightening has done little to narrow the yield advantage enjoyed by dollar-denominated assets.
Market participants continued to sell the Japanese currency in favour of the dollar, betting that the interest rate gap between the two economies will remain wide, further strengthening demand for the US currency.
Analysts said the contrast between the Federal Reserve's restrictive stance and the Bank of Japan's cautious policy normalisation remains the dominant driver of the exchange rate.
The yen's depreciation has also renewed market focus on the possibility of intervention by Japanese authorities, who have previously stepped into currency markets when excessive volatility threatened financial stability.
Elsewhere in the currency market, the euro recovered towards the 1.1420 level against the dollar after investors assessed mixed eurozone economic sentiment data and remarks by European Central Bank President Christine Lagarde, who warned that Europe is increasingly vulnerable to inflationary shocks but said the region's resilience gives policymakers room to raise interest rates if necessary.
Sterling also edged higher to around 1.3260 against the dollar, although gains remained limited as investors awaited fresh UK economic data.
The Australian dollar weakened towards 0.6890 ahead of the release of the Reserve Bank of Australia's meeting minutes and key Chinese manufacturing data, both expected to provide fresh clues on the regional economic outlook.
In commodity markets, West Texas Intermediate crude traded around US$70.50 a barrel as concerns over potential disruptions to shipping through the Strait of Hormuz continued to underpin oil prices, although they remained below recent peaks as traders assessed whether geopolitical tensions in the Middle East would escalate further.
Gold fell towards US$4,020 an ounce as the stronger dollar and expectations of higher US interest rates reduced demand for the non-yielding precious metal, though ongoing geopolitical uncertainty helped limit sharper losses. - June 30, 2026
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