DBS Group Research strategist Chang Wei Liang highlights that USD/JPY is edging towards the key 160 level that has previously triggered intervention, yet Japanese officials have been notably quiet. He argues that Japan’s heavy reliance on Middle East Oil and sizeable strategic reserves mean USD/JPY near 160 may be tolerated for now, with only moderate further Japanese Yen weakness expected.

Key psychological level approaches quietly

"USD/JPY is inching towards the 160 psychological level that has sparked intervention in the past, and the lack of rhetoric from Japanese officials is notable."

"Japan’s high reliance on the Middle East for its crude oil imports, with around 70% transiting through the Strait of Hormuz, means that the government and BOJ will have to be more cautious on economic consequences of the conflict."

"The good news is that Japan has a comfortable 250 days’ worth of strategic oil reserves, and has already announced plans to release 15 days’ worth of private-sector oil reserves and one month’s worth of state oil reserves."

"USD/JPY near 160 may be tolerated in the interim as energy import costs rise and as the USD strengthens broadly, but JPY weakness should not be too sharp given large strategic buffers."

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