Key Moments
- USD/JPY is moving closer to the 160 level that triggered past interventions. However, Japanese policymakers have stayed largely silent.
- Japan relies heavily on Middle East crude. In fact, much of it passes through the Strait of Hormuz, raising concerns about regional conflict.
- DBS says large strategic oil reserves could give authorities flexibility. Therefore, USD/JPY near 160 may be tolerated, with only moderate yen weakness expected.
DBS Flags Rising USD/JPY with Limited Policy Rhetoric
DBS Group Research strategist Chang Wei Liang says USD/JPY is approaching the key 160 level. Previously, this threshold has coincided with currency intervention. However, Japanese officials have not issued strong warnings about the recent move in the yen.
Energy Dependence Shapes Policy Caution
Meanwhile, Japan’s dependence on imported energy remains an important factor for policymakers. The country sources much of its crude oil from the Middle East. In addition, around 70% of these shipments travel through the Strait of Hormuz. Because of this exposure, authorities must carefully assess the economic risks linked to regional tensions.
Strategic Reserves Provide a Buffer
At the same time, Japan’s large energy reserves offer some protection. The country holds roughly 250 days of strategic oil reserves. Authorities have already announced plans to use part of these stockpiles if needed. For example, the government may release 15 days of private-sector reserves and one month of state reserves.
| Energy-related factor | Detail |
|---|---|
| Share of crude imports via Strait of Hormuz | Around 70% |
| Total strategic oil reserves | About 250 days |
| Planned release – private sector reserves | 15 days |
| Planned release – state reserves | About one month |
DBS Outlook: Yen Weakness Seen as Contained
According to Chang, these energy reserves reduce the short-term impact of higher import costs. This becomes important as the yen weakens and the U.S. dollar strengthens. As a result, authorities may tolerate USD/JPY near 160 in the near term.
Nevertheless, Chang believes the downside for the yen should remain limited. Large strategic reserves provide a strong buffer against rising energy prices. Meanwhile, the lack of strong rhetoric from Japanese officials suggests that policymakers are watching the market but have not yet signaled immediate intervention.
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