With crude oil prices likely to remain elevated amid escalating tensions in the Middle East, Nomura Securities' Goto Yujiro (後藤祐二朗) explains the impact of higher oil prices on the foreign-exchange market and how the yen's role as a safe-haven currency could change.
Crude oil prices are surging as speculation grows that the United States and Israel will attack Iran and effectively close the Strait of Hormuz. Goto Yujiro (後藤祐二朗) explains the impact of these developments on the foreign-exchange market.
Japan's mineral fuel imports are expected to reach ¥22.1 trillion in 2025. If crude oil prices rise 10% and remain elevated, import values could increase by more than ¥2 trillion, potentially worsening the trade balance. The deterioration in yen supply and demand is expected to emerge as annual pressure of approximately 2% for the yen to weaken against the U.S. dollar.
An examination of major currencies' performance against the U.S. dollar shows that yen buying was restrained during some periods of higher oil prices, suggesting that higher crude oil prices could put downward pressure on Japan's terms of trade.
The response of the Japanese authorities, including the Bank of Japan's accommodative stance and the Ministry of Finance's foreign-exchange intervention options, will also be a focus. Markets are also watching for the possibility of verbal intervention, rate checks and actual intervention.