Japan Suspected of Intervening in FX Market as Spillover Risks from the U.S.-Iran Conflict Rise

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Summary:

The yen rebounded more than 3%; a port near the Suez Canal was attacked, raising concerns that the U.S.-Iran conflict could open a new front...

【Highlights】

1. Japan reportedly intervened to support the yen, sending the currency surging more than 3%

2. Port near the Suez Canal attacked, raising concerns that the U.S.-Iran conflict could open a new front

3. U.S. second-quarter economic growth slows to 1.5%, while AI investment and consumer spending support demand

4. Bank of England holds rates steady, with three policymakers favoring a rate hike

5. U.S. Senate fails to pass resolution restricting military action against Iran

【Details】

Japan Reportedly Intervenes to Support the Yen, Sending the Currency Surging More Than 3%

A market source said Japan intervened in the New York market on Thursday by buying yen and selling U.S. dollars, pulling the currency back from a 40-year low after a prolonged period of weakness. Japan's Ministry of Finance has not yet commented on the report. A Fox Business reporter said U.S. Treasury Secretary Scott Bessent indicated that Japan may have intervened to support the yen.

Despite unprecedented intervention by Japanese authorities this year, totaling approximately $73.2 billion, downward pressure on the yen has yet to ease fundamentally. As is customary, the Bank of Japan is expected to release relevant data several weeks later, meaning the yen is likely to remain volatile in the near term. Markets widely believe Japanese authorities may recently have sold some overseas assets, including U.S. Treasuries, to raise funds for foreign-exchange intervention.

Separately, a market source told Reuters on Friday that South Korean foreign-exchange authorities conducted a rare intervention on Thursday by selling U.S. dollars. The Korean won strengthened to 1,418.0 per dollar on Thursday, its strongest level since October 20.

Port Near the Suez Canal Attacked, Raising Concerns That the U.S.-Iran Conflict Could Open a New Front

Two gas carriers at Egypt's Damietta Port were attacked by drones, raising concerns that the U.S.-Iran conflict could expand and threaten shipping security around the Suez Canal. The Suez Canal is one of the few remaining export routes for Saudi oil. Egypt's cabinet said no group had so far claimed responsibility for the attack. A spokesperson for Yemen's Houthi movement said the signs indicated that Saudi Arabia was moving toward a full-scale escalation.

According to a statement from Saudi Arabia's Ministry of Defense, the country hosted an international meeting to discuss the establishment of a maritime defense alliance. The ministry said delegations from 43 countries and the European Union participated in discussions on the proposed alliance, including Saudi Arabia's role as a founding and leading member and as the host of its headquarters. The ministry said the alliance would strengthen defense cooperation in the Bab el-Mandeb Strait, the Red Sea and the Gulf of Aden. Fourteen countries, including Türkiye, Pakistan, Egypt, Sudan and Djibouti, reportedly issued a joint statement supporting the proposed multinational maritime defense alliance.

U.S. Second-Quarter Economic Growth Slows to 1.5%, While AI Investment and Consumer Spending Support Demand

The U.S. economy slowed in the second quarter as a widening trade deficit weighed on growth. However, robust consumer spending and business investment related to artificial intelligence (AI) infrastructure highlighted continued strength in domestic demand. According to the Commerce Department's advance GDP report, U.S. GDP grew at an annualized rate of 1.5% in the second quarter, below the market expectation of 2.1%.

Meanwhile, the initial reading for the U.S. second-quarter PCE price index showed a 5.1% increase, while the core PCE price index rose 3.4%, compared with expectations for a 3.5% increase.

The U.S. Department of Labor reported that initial jobless claims totaled 197,000 for the week ended July 25, up 9,000 from the previous week and below the market expectation of 200,000. The previous week's figure was revised to 188,000.

Bank of England Holds Rates Steady, With Three Policymakers Favoring a Rate Hike

The Bank of England kept its benchmark interest rate unchanged at 3.75%, in line with market expectations. Minutes showed that the Monetary Policy Committee voted 6-3 to maintain the current rate. Chief Economist Huw Pill and policymakers Greene and Mann voted in favor of a 25-basis-point rate hike. At the June meeting, only Pill and Greene had supported immediate action.

The Bank of England maintained its policy guidance, saying the Monetary Policy Committee remained ready to act if high inflation persisted, thereby keeping its policy options open. The external environment remains highly uncertain. Just days before the decision, oil prices had already risen significantly above the average level used by the Bank of England in its baseline forecast just 10 days earlier.

U.S. Senate Fails to Pass Resolution Restricting Military Action Against Iran

The U.S. Senate on Thursday rejected a procedural motion seeking to advance a War Powers Resolution aimed at restricting military action against Iran. The motion failed by a vote of 49-50.

The motion sought to advance Senator Kirsten Gillibrand's S.J.Res.181 from the Senate Foreign Relations Committee for consideration by the full Senate. Under the War Powers Resolution, the measure would require congressional authorization before the United States could undertake certain military actions against Iran.

【Today's Economic Calendar】

11:00 (UTC+8) Bank of Japan July Interest Rate Decision

14:30 (UTC+8) Bank of Japan Governor Kazuo Ueda Holds Monetary Policy Press Conference

14:45 (UTC+8) France July CPI

17:00 (UTC+8) Eurozone July HICP

20:30 (UTC+8) Canada May GDP

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