The Japanese yen continued its slide on Wednesday, breaching the 163 mark against the US dollar for the first time since early June, as surging oil prices exacerbated fears over Japan's import bill. The currency fell 0.6% to 163.15 per dollar in afternoon Asian trading, extending losses from the previous session. Traders cited renewed upward pressure from crude costs, with Brent crude hovering near $87 a barrel amid supply concerns linked to Middle East instability.
The yen's weakness reflects Japan's heavy reliance on energy imports, which have driven the country's trade deficit wider in recent months. Analysts at Mitsubishi UFJ Financial Group noted that 'every $10 rise in oil prices adds roughly ¥1.5 trillion to Japan's annual import costs,' amplifying the currency's depreciation. The Bank of Japan has so far refrained from direct intervention, though officials have issued verbal warnings about 'excessive volatility.'
In contrast, the South Korean won held its ground, trading at 1,312 per dollar, down just 0.1% on the day. The won's resilience was underpinned by expectations that the Bank of Korea could step in to stabilise the currency, as well as a narrower-than-expected trade deficit in June. 'Korea's export momentum, particularly in semiconductors, is providing a cushion that Japan lacks,' said Lee Seung-hoon, a currency strategist at KB Securities.
The diverging performance of the yen and won highlights the uneven impact of rising commodity prices across Asia. For UK investors, the yen's slide raises the cost of hedging Japanese equity exposure and could weigh on returns from Tokyo-listed stocks held in international portfolios. Meanwhile, the won's stability offers a relative safe harbour in the region, though analysts caution that further oil price spikes could test its resilience.
The broader Asian foreign exchange market remains under pressure as the US dollar strengthens on expectations that the Federal Reserve will keep interest rates higher for longer. The US dollar index edged up 0.2% to 105.4 on Wednesday. For UK pension funds with emerging market allocations, the yen's weakness underscores the risks of currency depreciation eroding overseas investment gains.