USD/JPY: Oil shock keeps pressure on Yen – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong highlight that rising Oil prices are worsening Japan’s terms of trade, fiscal risks and policy uncertainty, keeping the Japanese Yen (JPY) under pressure. They still expect an April Bank of Japan (BoJ) hike but maintains its end‑2026 USD/JPY target at 155, warning that FX intervention becomes more likely near 160 as geopolitical risks and energy dependence persist.

Oil spike sustains downside risks for Yen

"The sharp rise in oil prices has added fresh pressure on the JPY, hitting Japan through weaker terms-of-trade, heightened fiscal concerns, and the risk that the typically cautious Bank of Japan (BoJ) pauses to reassess. Japan’s large dependence on Middle Eastern energy imports makes the currency particularly sensitive to geopolitical shocks."

"Our base case remains an April BoJ hike after the decision to stay on hold in March, but the Middle East conflict injects uncertainty into how policymakers will balance the inflationary oil shock against fragile sentiment."

"A pullback in oil prices—should geopolitical tensions ease—would offer some limited JPY relief. Even so, we stay cautious and maintain our end-2026 USD/JPY target of 155."

"PM Takaichi’s reflation‑leaning BoJ appointments have heightened questions about whether BoJ can stay ahead of the curve on inflation, while markets remain wary of fiscal slippage driven by rising defence spending. Meanwhile, Reuters reported that the Ministry of Finance has explored the idea of oil futures intervention, keeping markets alert."

"That said, we still see FX intervention near USD/JPY 160 as more likely than direct action in crude futures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)