The U.S. dollar fell for a second consecutive week, pressured by a surging Japanese yen after Japan’s Finance Minister signaled that the world’s largest pension fund should shift more into domestic assets. The dollar index slipped 0.1% on Friday, while the dollar-yen pair dropped 0.6% to 161.44 as the yen rallied as much as 1.5% intraweek from its weakest levels since 1986.
GPIF pivot drives yen rally
Finance Minister Satsuki Katayama said Tokyo wants its Government Pension Investment Fund (GPIF), which manages over $1.5 trillion, to increase allocations to Japanese government bonds and domestic equities. Such a move would reduce the fund’s foreign-asset exposure, boosting demand for yen and supporting the currency. The speculation alone was enough to trigger a sharp unwind of leveraged carry trades and raise market chatter of potential direct intervention by authorities, though no official action was confirmed.
Inflation data strengthens BoJ rate hike case
Japan’s producer price index for June grew at its fastest pace in over three years, reinforcing expectations that higher producer costs will feed into consumer inflation. This added to the case for further Bank of Japan rate hikes, providing additional support for the yen. Japanese 10-year bond yields slid 3.4% following the GPIF news.
Geopolitical tensions send mixed signals
The U.S.-Iran military conflict injected uncertainty into currency markets. U.S. forces struck roughly 90 Iranian targets on Thursday, and Iran retaliated with drone and missile attacks on U.S. bases. President Trump initially said a ceasefire was over, then indicated Iran had reached out for talks. The conflict initially boosted the dollar as a safe haven, but a 2% drop in crude oil prices eased inflation fears and reduced pressure on the Federal Reserve to raise rates. Fed minutes from June revealed policymakers were divided on rate hikes, and markets now price only a 24% chance of an increase at the July 28–29 meeting.
U.S. data and other currencies
U.S. jobless claims fell to a six-week low of 215,000, signaling a still-healthy labor market, but existing home sales dropped 2.4% in June to 4.09 million, missing forecasts. The euro and pound each rose about 0.1% against the dollar, the Chinese yuan gained 0.2%, and the Australian dollar added 0.3%. South Korea’s won was the exception, falling 0.3% amid local equity volatility following the launch of 24-hour won-dollar trading.
Gold and silver shine
Gold rose 1.43% and silver jumped 3.77%, lifted by dollar weakness, lower bond yields, and Middle East tensions. China’s central bank added 320,000 ounces of gold to its reserves in May—its largest monthly increase in 17 months and its 19th consecutive month of purchases.
