Yen briefly hits 163 per dollar, weakest in nearly 40 years

2026-07-21

Dollar buying dominates on Middle East tensions

As tensions in the Middle East intensified, safe-haven buying of the dollar strengthened, and the yen fell against the dollar in the New York foreign exchange market on the morning of the 21st, briefly touching the 163-per-dollar range. It marked the weakest level since December 1986, a low not seen in 39 years and seven months.

Higher oil prices also pressure the yen

The yen fell further below its early July low of 162.84 per dollar. It was trading around 162.60 yen at 5 p.m. Japan time on the 21st, but later widened losses rapidly.

U.S. President Donald Trump posted on social media on the 20th that 'every time Iran kills our troops, we will make it pay in ways many times greater.' Fears that the confrontation between the United States and Iran could escalate into full-scale military conflict led to broad dollar buying against other major currencies.

The Iran-backed Houthi movement said on the 20th that it would immediately impose a 'naval blockade' on Saudi Arabia with the Red Sea in mind. Oil prices rose on expectations of disruptions to energy transport, and views that Japan's trade deficit, which relies on crude imports, could widen also prompted yen selling and dollar buying.

Fed rate outlook provides support

Concerns about a renewed bout of U.S. inflation also remain strong. Federal Reserve Chair Warsh said in testimony before the U.S. Congress on the 14th that he would not tolerate persistently high inflation, and although the June consumer price index released the same day showed slower growth, he said it was 'not mission accomplished.'

Because of the background of being nominated by Trump, who had pressed the Fed for steep interest rate cuts, the market had seen Warsh as leaning toward rate cuts as well. His hawkish stance on inflation has been supporting the dollar's firmness. The dollar index, which measures the currency's strength against major peers, has been trading above 100 and is near its highest level since May 2025.

Downside risks to the yen persist

Selling pressure on the yen remains. In addition to lower policy rates than those of major central banks, structural yen-weakening factors are being watched, including the trade deficit and overseas stock investment by individual investors through the new NISA tax-free investment program. Views that the Sanae Takaichi administration favors aggressive fiscal policy and an accommodative financial environment are also weighing on the yen.

The government and the Bank of Japan stepped in to buy yen after the currency fell into the 160-yen range at the end of April and again when it dropped to the 161-yen range in July 2024. With the currency once again in historically weak territory, market caution over another yen-buying intervention is rising in foreign exchange trading.

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