Benchmark Tokyo rubber futures rose to a 2-week high on Friday, booking a nearly 6% weekly gain, as higher oil prices fed risk appetite and prompted buying, offsetting the yen's spike and a weaker Nikkei.
The Tokyo Commodity Exchange (TOCOM) rubber contract for August delivery finished 3.3 yen or 1.9% higher at 178.9 yen (US$1.61) per kg, after retreating from a high of 181.5 yen, the highest since March 7.
For the week, it gained 5.9%.
"Basically, rubber tracked oil prices which were buoyed by the weaker U.S. dollar," said Masayo Kondo, president of Commodity Intelligence Ltd, a Tokyo-based commodity research firm.
U.S. oil futures touched new highs for 2016 on Friday and were set to post gains for a fifth straight week on growing optimism that major producers would strike a deal to freeze output, while a more benign interest rate environment also supported prices.
The dollar held near a 17-month low of 110.67 yen struck overnight as the Fed's less hawkish outlook for U.S. interest rates weighed on the U.S. currency.
The Nikkei share average fell for a fourth day on Friday, after the dollar plunged to a near 17-month low overnight, pressuring exporters and dented overall sentiment.
"But I doubt oil prices will sustain the current levels above US$40 barrel. Therefore, TOCOM rubber is likely to come under pressure again," Kondo said, adding this scenario may change if the drought in Vietnam affects output in the world's fourth biggest rubber producing country.
The Mekong Delta is facing a drought and serious salination, caused by the El Nino phenomenon which would peak in April, Vietnam's Prime Minister Nguyen Tan Dung warned earlier this month, according to the government's website.
The most-active rubber contract on the Shanghai futures exchange for September delivery fell 25 yuan to finish at 11,700 yuan (US$1,808.77) per tonne.
The front-month rubber contract on Singapore's SICOM exchange for April delivery last traded at 133.2 U.S. cents per kg, up 3 cents.
