USD/JPY 158.60 Close: Yen Weakens on Tokyo Holiday

The yen weakened on Monday, when Japanese and U.S. bond markets were shut, and USD/JPY closed near 158.60, its highest close since September 24. The USD/JPY 158.60 close came with benchmark yields frozen and Brent crude back above $107 a barrel.

Key Takeaways

Oil rebound: Brent crude rose above $107 a barrel on Monday after the week opened below $103.
Frozen yields: The US 10-year Treasury yield stayed at Friday's 5.24%, and Japan's 10-year yield held near 3.0%.
Intervention record: Japan's Finance Ministry spent ¥15.4 trillion on the yen between July 30 and late August, the most ever in a month.

What Happened

USD/JPY hit its Monday low near 158.00 at the weekly open. Brent fell below $103 then, after Trump claimed an energy ceasefire between Russia and Ukraine.

Oil then reversed and climbed above $107. USD/JPY rose to a high just above 158.50 and closed near 158.60.

Both bond markets were closed, so benchmark yields did not move from Friday's levels. Brent was the main price still moving in the session, according to the report.

Background

Japan buys nearly all of its crude oil abroad, and the bills are set in dollars. A higher Brent price therefore means more yen sold to pay for energy.

The Bank of Japan raised its policy rate to 1.25% on September 18. Board member Sato was one of two votes against. Sato supports raising rates in stages and says oil prices tilt the risk toward higher prices.

Japanese household spending fell for a ninth straight month in August. Prime Minister Takaichi wants to cut the food consumption tax from 8% to 1% for two years from April 2027, at an estimated cost of ¥10 trillion. She says she will not sell bonds to fund it.

Market Impact

USD/JPY: The Fed policy rate of 3.75%-4.00% compares with the BoJ's 1.25%. That wide rate gap sits behind a pair trading near its highest close in about three weeks.
Brent crude: The swing from a sub-$103 open to a move above $107 matched USD/JPY's range from near 158.00 to just above 158.50.
Yen futures: CFTC data showed speculators' net long yen position at 62.3K contracts, about ¥779 billion, as of October 6. They added 6.9K contracts that week.

What to Watch Next

Tokyo reopening (Tuesday): Japanese markets return, so the 10-year yield, near 3.0% on Monday, can move again. Japan's finance minister is in Bangkok for IMF meetings.
Fed Governor Waller (Tuesday): He speaks at 07:45 GMT, ahead of the US data run later in the week.
US data (Wednesday and Thursday): September CPI is due Wednesday at 12:30 GMT. US producer prices and retail sales follow Thursday at 12:30 GMT.
Fed Chair Warsh (Friday): He holds a fireside chat at the IMF meetings at 03:30 GMT. The Fed then stops public comment before its October 27-28 meeting.

Bottom Line

Monday's yen weakness came on a day when bond yields could not move, so Brent was the main input that did. USD/JPY exposure this week runs through oil, US inflation data and the Fed's pre-meeting quiet period.

USD/JPY 158.60: Yen Slips as Brent Tops $107