- Japan has not fully exited from deflation
- Compiling extra budget would of course be an option as said before
- Government ready to take steps in a timely manner to combat economic impact from US-Iran conflict
- Markets are making big moves so we will respond nimbly while closely communicating with peers
With all the focus on the Middle East, we may get some added volatility from Japan before the week comes to a close. USD/JPY is bordering at the week’s highs near the 158.00 level, threatening its highest levels since the ‘rate check’ at the end of January.
The main issue plaguing the currency is still the Takaichi trade for the most part. But amid the US-Iran conflict, higher oil prices are also weighing heavily on the economic outlook. And that in turn also makes it tough for the BOJ to transition to the next rate hike, even with a strong result from the spring wage negotiations lined up.
A weakening economy and cost-push inflation, something that the BOJ wants to avoid, are both an direct result of higher oil prices considering Japan’s status as an energy importer.
Piecing all that together, the fundamental drivers are pushing down the yen currency. And in turn, it is also making it tough for the finance ministry to step in with outright intervention. Nobody likes to be burning cash against a backdrop that is working counter to your intentions.
