Market Talk: How to shore up the Yen?

Added: 2026-06-03

[00:00:00]Currency traders are in watch and wait mode as talks over Iran still seems stuck.

[00:00:08]Oil has fallen slightly this Tuesday as President Trump said talks with Iran were ongoing, but there seem to be no concrete signs of progress. The dollar has been trading in a tight range for the last couple of weeks as investors lack signals to go on. Meanwhile, a report from the ECB this morning said that the euro is failing to increase its global market share despite hopes erratic US policy could help it take some of the dollar's role. Jeremy Stretch is chief international strategist at CIBC. Jeremy, currency markets around the world seem a bit stuck in recent days. Are they waiting on news from Iran?

[00:00:41]>> I think we have had a situation where markets have been obviously incredibly susceptible to headlines and headline risk over the course of recent weeks, but because of the plethora of headlines without any substantive sort of impetus coming with them, it is very much the case that now markets are watching and waiting for something that is going to provide a definitive breakout of the the recent ranges. And that would encourage either a substantive risk-on move, which would obviously favor the high beta currencies such as sterling, or alternatively, we would return back to a very much a negative risk-off environment, which would encourage the oil price to move substantially higher and would benefit the dollar. So, in a sense, until we get something significant from the uh negotiations and beyond just the headline risk, I think investors are going to continue to be remaining somewhat sitting on their hands waiting for a real news in order to trade off that.

[00:01:33]>> Then, do you think a meaningful peace deal would mean a recovery for currencies that are big oil importing countries and a fall in safe haven demand for the dollar?

[00:01:41]>> Yes, certainly that's possibly true because of course we we are very mindful that obviously for currencies like dollar-yen, which remain uh very close to that 160 threshold, probably the greatest benefit in terms of the Japanese authorities in trying to stem the upside in dollar-yen would be a retreat in the oil price. Uh and the impact of that will be beneficial for the Japanese economy via its oil importer status. So, I think we are still in a scenario where the high beta currencies will perform well if we do see some degree of resolution to the crisis. And all those that are of course big energy importers or have energy exposure would also benefit at the expense of those that have been advantaged from the the fiscal revenues that have been coming in. And so currencies like the Nokkie, which has obviously been one of the lead performers in the year to date, would potentially lose a little bit of its impetus if we were to see some degree of resolution.

[00:02:31]>> The Yen, Jeremy, has been moving back down towards that crucial level of 160 to the dollar. Why does recent intervention seem to have made little difference?

[00:02:39]>> Well, ultimately of course it's done little to really alleviate the reasons or challenges which have been affecting the Japanese economy. So, it is still a low interest rate environment even though the market is anticipating that the BOJ will be hiking rates at its next meeting. And indeed, that's part of the problem that the market is already largely anticipating that the BOJ will take rates up by 25 basis points to 1%.

[00:03:01]But that is still on a relatively low level compared to other central banks.

[00:03:05]We still have that energy importer status which also impacts the the Japanese economy. So, it is the case that markets I think are testing the resolve of the monetary authorities.

[00:03:14]They've seen them throw sizeable funds over the course of the last month or so against against the Yen weakness without any real response. And in a sense, as I say, I think the greatest opportunity for a correction in terms of dollar Yen lies more at the heart of the resolution of the Middle Eastern crisis than it does the BOJ or more importantly the MOF throwing more money at the at the process via intervention.

[00:03:39]>> There was an interesting report out this morning from the ECB, Jeremy. Christine Lagarde says in it that she sees an opening for the Euro to enhance its global appeal. But why hasn't that yet happened at the expense of the dollar as much as many traders were expecting.

[00:03:52]>> Well, I think it's the topic of de-dollarization is something that I've been talking about with clients for almost two decades in a sense, ever since the arrival of the euro. Now, of course, the euro was bedeviled by the eurozone debt crisis, and so that did retreat into all the cause of retreat in terms of holdings of the euro reserves.

[00:04:11]But, of course, the other problem that the eurozone continues to have relative to say the US is the depth of the bond market relative to the US. So, we still have that concern that we don't have that coordinated fiscal backdrop. We don't have that eurozone bonds metric that would really help to facilitate the advancement of of the euro. We are seeing a gradual increase, but I think the markets or investors are still very nervous about the depth of the bond market liquidity and or still the relatively low growth environment that the eurozone is very much wedded to, which unfortunately doesn't really enhance the attractiveness of the euro on a significant basis even against the uncertainties that are obviously bedeviling the dollar in the current environment.

[00:04:55]>> Is there space for the euro to increase that role because of those uncertainties, though?

[00:04:59]>> Oh, I think there is, and I think we can and should expect the euro over time to gradually rebuild its reserve currency status.

[00:05:07]At the same time, we would expect the the dollar's role to gradually fall back to below the 50% threshold of global foreign exchange reserves. Because if we go back to, you know, the beginning of the millennium, we were talking about 70% plus. We're now heading slowly but inexorably towards a sort of 50% threshold. So, we are seeing a graduated move away from the dollar, but it is a very slow process. And I think the other factor to keep in mind is that whilst investors are increasingly nervous about holding US Treasuries, they're not necessarily divesting themselves purely of US assets, but perhaps looking at sort of US super sovereigns rather than necessarily US Treasuries. And so, that perhaps is slowing the demise of the dollar or dollar-based assets relative to the euro. But I think there is and will be the case for a graduated but slow and steady appreciation in the holdings of euros on a relative basis in the global FX infrastructure.

[00:06:02]>> That was Jeremy Stretch of CIBC. Don't forget you can watch more videos on reuters.com.