July 18, 2007 (LPAC)--Iran nicked the U.S. dollar and the carry traders on July 13 when it asked Japan to pay in Yen for the oil it imports. Iran has sent a letter to Japanese refiners, signed by Ali A. Arshi, the general manager of crude marketing and exports for Iran's National Iranian Oil Company, according to a report by Bloomberg. The announcement is considered not fatal for the dollar because Japan only imports $10 billion worth of oil from Iran.

On the other hand, the news drove down the dollar against the yen to 120 from 122.40, but it later recovered somewhat, still remaining above 121. But observers point out that whether the action is symbolic or not, three big oil producing nations--Iran, Venezuela, and Russia--have all been moving much of their foreign currency reserves from dollars to euros in recent months. The latest move by Iran can only add to the long-term pressure on the dollar, already hit by worries about the U.S. economy based on the crisis in the subprime mortgage market.

Also, the responses to Iran's request indicate that many nations are concerned about the imported inflation that the weakness of the dollar has brought to their own countries. Subsequently, Kuwait announced that it was going to allow the dinar to appreciate by 0.4 percent in order to lower inflationary pressures.