USD/JPY is closing in on the highest levels of the year.
The pair is up 80 pips so far today to 158.59, breaking above last week’s peak and trading at the best levels since January 22. That was the day of the widely-publicized Ministry of Finance rate check via US banks late on a Friday. That move caused a huge position squaring event, while in early February the strong LDP election win led to a second drop in USD/JPY.
All that has been washed away now as the yen takes a beating. Japan is a major energy importer and the lack of oil and natural gas coming through the Strait of Hormuz is a massive problem for the island.
Japanese trade minister Akazawa said he discussed energy with US Commerce Secretary Howard Lutnick but refrained from giving details. He said Japan will take all possible steps to ensure the oil price increase won’t have a negative impact on Japanese people’s lives.
The thing is, even with subsidies, it will have to be paid eventually and that’s not a great thing in a nation with a huge debt burden. Worse yet, everything was beginning to go right with Japan in the past year. The Nikkei has been on a huge run that’s been stopped dead by surging energy prices.
It’s down more than 6% today and has virtually wiped out the gains for the year, which had been +20% just over a week ago.
The jump in oil prices will put the Bank of Japan in a difficult spot. Yes, they’re inclined to look through it but they’re already in a hiking cycle and this could impact inflation expectations. For now, the market sees just a 5% chance of hike in March but that rises to 50% for the April meeting.
This article was written by Adam Button at investinglive.com.
