Yen Slips as Oil Surge and Risk Aversion Lift Dollar

Key Moments

Japanese Yen Under Pressure

The Japanese Yen (JPY) is weakening against most major currencies amid climbing oil prices and a risk-off tone in financial markets. During the early European session on Monday, the Yen is down 0.4% against the US Dollar, with USD/JPY trading near 158.50 and edging closer to the 19-month high of 159.45. JPY is underperforming most of its peers, with the exception of the Euro (EUR) and the Pound Sterling (GBP).

The latest leg of Yen weakness is tied to a surge in crude oil prices linked to the conflict in the Middle East, which involves the United States (US), Israel, and Iran. The escalation in energy costs is undermining the appeal of the Yen at a time when safe-haven demand is being channeled into the US Dollar instead.

Japanese Yen Performance Snapshot

The article notes that Japanese Yen was the weakest against the Canadian Dollar in today’s trading. The underlying data are presented as a percentage-change matrix of major currencies, where the base currency is listed on the left and the quote currency across the top. For example, selecting Japanese Yen in the left column and moving horizontally to the US Dollar cell shows the percentage change for JPY (base)/USD (quote).

Oil Price Surge Weighs on Japan

WTI crude oil has given back part of its earlier advance that followed air strikes by the US and Israel on Iranian depots over the weekend, but it is still trading about 15% higher around $101.00. Prices had previously climbed to an intraday high near $113.00 before easing after reports that G7 members and the International Energy Agency (IEA) will discuss deploying emergency oil reserves.

Elevated oil prices are particularly negative for currencies such as the Yen because Japan is one of the largest oil importers globally. Higher energy import costs tend to pressure the country’s trade balance and weigh on the currency.

Domestic Concerns and Policy Discussion

Japan’s Prime Minister (PM) Sanae Takaichi acknowledged the burden of higher energy costs on households, stating that residents are worried about “rising gasoline prices”, and noting that the government is assessing potential measures to mitigate the impact. At the same time, Takaichi commented that it is “difficult to say now how the Middle East conflict might affect Japan’s economy”.

Upcoming Japanese GDP Data

On the macroeconomic calendar, investors are looking ahead to the revised Q4 Gross Domestic Product (GDP) figures due on Tuesday. The updated estimate is expected to show that the Japanese economy grew by 0.3% quarter-on-quarter, compared with the preliminary print of 0.1%.

Definition: Japan GDP (QoQ)

The Gross Domestic Product (GDP), released by Japan’s Cabinet Office each quarter, measures the total value of all goods and services produced in Japan during the period. It is considered the primary gauge of Japan’s economic performance. The quarter-on-quarter reading compares activity in the reference quarter with the prior quarter. In general, a higher GDP reading is viewed as positive for the Japanese Yen (JPY), while a weaker reading is considered negative.

US Dollar Strength and Key Data Ahead

The US Dollar is trading with a firm tone, supported by higher oil prices and a generally risk-off market backdrop. As of writing, the US Dollar Index (DXY) – which tracks the Greenback’s performance against six major currencies – is up 0.45% and trading near 99.35.

Looking ahead, the US Dollar’s direction this week will be shaped by the US Consumer Price Index (CPI) data for February, scheduled for release on Wednesday.