The Bank of Japan raised interest rates to a 31-year high on Tuesday as it tries to dampen inflationary pressures created by the Iran war, while global oil prices fell below $80 a barrel for the first time in three months on optimism about a US-Iran peace deal.
The benchmark Brent crude price dipped as low as $79.96 a barrel, its lowest since March 3, in the first week after the US-Israel attacks on Iran began. Oil has fallen by $15 a barrel since last Thursday, before optimism began building that Washington and Tehran might reach an agreement.
The drop came after Iran state media reported that Iranian oil tankers have resumed shipping following the deal with Washington. A state television reporter said: “Three Iranian oil tankers are currently sailing in the northern Indian Ocean, and two others carrying essential goods and livestock feed are en route and sailing towards southern ports.” The reporter added that “the operation to lift the naval blockade has been implemented,” suggesting the US naval blockade has been eased.
Japan’s Rate Hike
The Bank of Japan’s decision to raise rates to their highest level since 1995 reflects growing concern over domestic inflation, much of it imported through higher energy costs linked to the Middle East conflict. The move signals the central bank’s determination to tackle price pressures even as global oil prices show signs of easing.
Global Market Reactions
The drop in oil prices is rippling through global markets:
– European gas prices have dipped, though they remain above pre-war levels.
– Aluminium prices fell to their lowest since March 27 on expectations that supplies from the Middle East will pick up once the Strait of Hormuz reopens.
– US government borrowing costs have fallen, easing fiscal pressure.
– Wall Street opened mixed, with the Dow Jones rising but the Nasdaq slipping.
However, European allies at the G7 summit do not appear to share US President Donald Trump’s optimism that the Strait of Hormuz will reopen by Friday.
SpaceX Surges
In other business news, SpaceX has overtaken Amazon’s market capitalisation. The rockets-to-satellites-to-AI company’s shares rose 8% at the start of trading in New York, lifting its market cap to over $2.7 trillion, ahead of Amazon’s $2.65 trillion. SpaceX’s shares are now changing hands at $207.83, having floated at $135 each on Friday.
US Housing Slump
US housing starts dropped to their lowest rate since May 2020, a sign that the jump in mortgage rates and raw material costs since the Iran war began is hurting the housing market. Privately-owned housing starts fell by 15.4% in May to a seasonally adjusted annual rate of 1,177,000, the lowest since the Covid-19 pandemic.
The Bottom Line
Japan raised interest rates to a 31-year high to combat inflation driven by the Iran war, while global oil prices fell below $80 a barrel for the first time in three months on optimism about a US-Iran peace deal. Iranian oil tankers have reportedly resumed shipping, and the US naval blockade appears to have been eased. However, European allies remain skeptical that the Strait of Hormuz will reopen soon. In other markets, SpaceX overtook Amazon’s valuation, and US housing starts hit a six-year low.
