FX.co ★ Yen Weakens Past 160 as Carry Trades Dominate

The Japanese yen weakened past 160 per dollar on Monday, erasing earlier-session gains as traders increased short positions amid ongoing carry trades, in which investors borrow in low-yielding yen to invest in higher-yielding currencies. This move underscores the persistent interest rate differential between Japan and the US, which continues to outweigh the Bank of Japan’s gradual policy tightening and repeated currency interventions by Tokyo. Even so, the Bank of Japan is widely expected to raise interest rates this week in an effort to curb inflation and stabilize the currency. The yen also drew some support after the US and Iran reached a peace agreement to reopen the Strait of Hormuz. Oil prices subsequently fell to a two-month low, easing inflationary pressures and lowering import costs for energy-dependent economies such as Japan.