On the 23rd, in the New York market, the yen briefly fell to the late 163 range against the dollar. This is its weakest level in about 39 and a half years, since December 1986. The next day, it came close to 164. The key point is that this is not just a short-term move. It is the result of several factors coming together at once. Selling the yen and buying the dollar is happening on a global scale.

So why do attacks in the Middle East reach your wallet in Japan? The chain works like this. First, worsening tensions pushed oil futures prices higher. Higher oil raises energy costs and revives inflation in the United States. If prices rise, the market expects the Fed (the U.S. central bank) to raise rates to hold it down. A dollar with higher interest becomes more attractive, so it is bought. As a result, the dollar strengthens, the yen weakens, and this feeds back into prices in import-dependent Japan.

At the source of the weak yen lies U.S. interest rates. According to CNBC, investors are increasingly pricing in a Fed rate hike in September. The reason is inflation fears driven by higher oil. The point to grasp is that the wider the interest-rate gap between Japan and the U.S., the easier it is for the low-rate yen to be sold. Currencies move on the relative appeal of two countries. As long as U.S. rate-hike expectations continue, downward pressure on the yen is unlikely to fade easily.

Even as currencies and rates turned choppy, some AI and semiconductor stocks in the Tokyo market were bought, and prices rose. This is a scene open to interpretation. From a long-term investor's view, some read this not as a temporary cycle but as a structural factor. In other words, even under macro (the whole economy) headwinds, money flows toward areas where continued AI demand is expected. Rather than the whole market rising, it suggests a widening gap between stocks bought on a theme and those sold.

There are three points to watch ahead. First, the direction of oil prices. If Middle East tensions calm down, the starting point of the chain weakens. Second, the Fed's actual decision in September. Whether expectations become reality will change the direction of the currency. Third, the pass-through to import prices if the weak yen continues. Since Japan relies on imports for much of its energy and food, a weak yen is directly tied to living costs. Rather than just following the numbers in the news, watching which part of these three chains moves makes the meaning easier to grasp.