Japanese Yen Continues to Rise; Calm in Local Market — Dollar at 3.05 Shekels

Minor movements were observed in the local foreign exchange market at the start of August, following a 3.2% depreciation of the shekel against the currency basket in July. The dollar is trading at 3.05 shekels, and the euro is around 3.52 shekels. In global markets, following a sharp pullback in the dollar toward the end of the week, the dollar index is down 0.2% to 99.7 points, the euro remains stable at just above 1.15 dollars, and the pound is down 0.1% at over 1.34 dollars.

The yen continues to strengthen: the Japanese Ministry of Finance confirmed today that it carried out a coordinated intervention in the foreign exchange market on Friday, together with the US Department of the Treasury, in a rare move to curb the decline of the Japanese currency. Tokyo signaled its readiness to intervene again if necessary, stating it "will not hesitate to carry out additional coordinated interventions in the future" and maintains close contact with the US Department of the Treasury. Japanese Finance Minister Satsuki Katayama emphasized that Japan "continues to monitor developments closely and is in close contact with its counterparts at the US Department of the Treasury." Following the intervention, the yen strengthened to 157.57 per dollar, and this morning the dollar weakened by another 0.6% to 156.5 yen.

Inflationary Pressures and Bank of Israel Policy

Fuel price volatility is having a significant impact on inflation expectations:

"The price of fuel crossed the 8 shekel per liter level — a monthly increase of 8.2%, which reflects the rise in oil prices, the rise in refining margins, and also the depreciation of the shekel against the dollar. Assuming that tanker traffic in the Strait of Hormuz resumes, it is likely that the price of fuel will drop back in September. The high volatility in fuel prices affects inflation expectations for the short term. The Consumer Price Index for August is expected to rise by a high rate of 0.9%, and after that, the September index will correct with a slight decrease, assuming that fuel prices drop. It is likely that the volatility itself affects inflation due to the uncertainty it creates."

At Bank Hapoalim, the inflation forecast for the coming year remains at 2%, assuming the government raises indirect taxes or prices for regulated services early next year. "The inflation implied in the derivatives market stands as of the beginning of the week at 1.7% for the next 12 months; it is possible that this rate will decrease if oil prices indeed fall," bank economists noted. They further observed that the current interest rate in Israel is within the Bank of Israel's "comfort zone," and markets are currently pricing in a 0.25% decrease by the end of the year.