Market brief
Iran Offers Conditional Hormuz Reopening as Yen Leads on Intervention Signals
Brent gives back only part of a two-day surge and Treasury yields ease with crude, while Tokyo's account of US concern over yen weakness lifts the currency and keeps another jointly executed intervention in play.
By PREVICT ResearchUpdated
Key points
- Iran confirmed a new proposal to the US to reopen the Strait of Hormuz subject to conditions; Brent crude fell more than 1% after a 10% two-day rise.
- The yen led gains after Finance Minister Katayama said President Trump raised concern over yen weakness, keeping the possibility of another joint US-Japan intervention open.
- Growth Strategy Minister Miura said the era of Abenomics-style reflationary policies is over, a message that gains weight from the Bank of Japan's recent hike and a 2-year JGB yield close to 2.00%.
Iran has offered the United States a new proposal to reopen the Strait of Hormuz if certain conditions are met, Foreign Minister Araghchi confirmed. Brent crude fell more than 1% on the day, modest against a 10% gain over the two previous sessions, and Treasury yields, tightly correlated with oil, edged lower. The yen was the top performer, after comments in Tokyo from Finance Minister Katayama and Growth Strategy Minister Kiuchi.
The pullback in crude gave fixed income its first respite of the week, with UST yields down modestly and at least a pause possible in the recent strong selling. MUFG judged scepticism about the proposal natural and the drop in oil modest relative to the two-day advance, and said credible confirmation of progress from the US side would likely have a much larger impact on oil and Treasury yields, and notably on USD/JPY.
Katayama's remark that President Trump had expressed concern over yen weakness underlined Tokyo's effort to present its campaign against a weak yen as a continued joint strategy with Washington, MUFG said. The bank argued that joint US-Japan action beyond a single occasion is unusual, so a repeat would carry a strong message to markets, and called it possible given the Bank of Japan raised rates last week and indicated there was more to come.
The yen had weakened in the wake of that BOJ meeting, a move MUFG attributed to excessive hawkish pricing rather than any dovish signal from Governor Ueda, who it said did not communicate one.
Growth Strategy Minister Miura stated that the era of Abenomics-style reflationary policies, which combined aggressive monetary easing with a flexible fiscal approach, is over. MUFG said that message gains credibility now that the BOJ has hiked and Japanese yields are more elevated, with the 2-year JGB yield trading close to 2.00%.
