Dollar Weakens as Japanese Yen Rebounds
The U.S. dollar moved lower on Friday as the Japanese yen strengthened following reports of a new pension investment plan in Japan.
Tokyo is looking to encourage pension funds to invest more in domestic assets, a move that could increase demand for Japanese bonds and support the yen.
Strong Japanese Inflation Data Supports the Yen
The yen also gained support from stronger-than-expected producer inflation data.
Japan’s producer price index rose at its fastest pace in more than three years in June, partly due to higher energy costs. The data strengthened expectations that the Bank of Japan may have more reason to raise interest rates again.
Dollar Index Heads for Weekly Loss
The dollar index fell 0.1% on Friday, mainly pressured by the stronger yen.
The index was also on track for a 0.1% weekly decline, marking its second consecutive weekly loss.
Iran Talks and Fed Policy Remain in Focus
The dollar had started the week slightly stronger after renewed U.S.-Iran tensions raised concerns about higher energy prices and inflation.
However, the greenback later lost momentum after minutes from the Federal Reserve’s June meeting showed policymakers were divided over whether to raise interest rates this year.
Recent soft payrolls data also reduced expectations for another Fed rate increase.
Uncertainty Limits Dollar Losses
Despite the decline, dollar losses remained limited.
Investors are still watching the Iran conflict and its possible impact on inflation. Higher energy prices could still push the Federal Reserve toward tighter monetary policy later this year.
U.S. President Donald Trump said earlier this week that the ceasefire with Iran was over. He later said that Iran had reached out for further talks.
Yen Rises on Pension Fund Investment Plan
The USD/JPY pair fell 0.6% to 161.44 after Finance Minister Satsuki Katayama said Japan wants its Government Pension Investment Fund to increase investment in local assets.
The fund is the world’s largest pension fund, so any shift in allocation could have a major impact on markets.
More investment in Japanese assets could boost demand for the yen and Japanese government bonds.
Japanese Bond Yields Fall
Japanese 10-year government bond yields dropped after Katayama’s comments.
The move reflected expectations that higher domestic investment from pension funds could support Japan’s bond market.
Yen Still Near Long-Term Lows
Even with Friday’s gains, the yen remained close to its weakest level in around 40 years.
This shows that the currency is still under pressure despite support from policy news and stronger inflation data.
Other Major Currencies Rise
Other major currencies also strengthened against the dollar on Friday.
The euro and the British pound each rose by around 0.1%. The Australian dollar gained 0.3%, while the Singapore dollar also firmed slightly.
Asian Currencies Show Mixed Moves
The Chinese yuan strengthened after recent data showed inflation continuing to recover.
The South Korean won moved in the opposite direction, weakening by 0.3% as volatility in local equity markets weighed on the currency. South Korea had also launched 24-hour won-dollar trading earlier in the week.
