Yen Slides Past 162 as Tokyo Scrambles to Reassure Markets on Bank of Japan Independence

The Japanese yen weakened to around 162 per dollar, surrendering earlier gains as escalating tensions in the Middle East and a stronger US dollar pressured the currency. Japan's heavy reliance on crude imports through the Strait of Hormuz makes both its economy and currency unusually vulnerable to oil price spikes, and fresh missile exchanges over the weekend pushed energy costs higher. Compounding the pressure, the administration of Prime Minister Sanae Takaichi has been working to walk back language in a draft policy document that investors read as an attempt to discourage future rate increases, a episode dubbed the Basic Policy shock. Finance Minister Satsuki Katayama stressed that monetary policy should be managed by the Bank of Japan under the Bank of Japan Act, which guarantees its independence, and said maintaining market confidence in that stance is essential. The yield on the newly issued 10-year Japanese government bond has risen as high as 2.900% amid concerns about fiscal expansion. The Bank of Japan raised its policy rate to 1% in June, its highest since 1995, but a rate gap of roughly 250 to 275 basis points against the US continues to encourage carry trades that weigh on the yen.