While Japan managed to stop USD/JPY bulls in January, the situation changed in March. The US dollar is rapidly strengthening due to the conflict in the Middle East. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Tokyo imports up to 90% of its energy resources from the Middle East.
- Rising oil prices may spur inflation in Japan.
- Rotation between stock markets is not helping the yen.
- Long positions on the USD/JPY pair can be opened on a breakout of 157.8 and 158.3.
Weekly Fundamental Forecast for Yen
The conflict in the Middle East risks significantly disrupting the Japanese government’s plans to stimulate the economy. Encouraged by the slowdown in inflation in January-February, Sanae Takaichi criticized the Bank of Japan’s plan to resume rate hikes and began considering fiscal expansion. However, the surge in oil prices has pushed the USD/JPY pair higher and may leave the prime minister’s promises unfulfilled.
Tokyo Inflation Change
Source: Bloomberg.
Japan is a net importer of energy products, about 90% of which come from the Middle East. At the same time, Qatar’s suspension of gas production due to Iranian drone attacks on LNG facilities has led to a significant increase in prices. Although Tokyo purchases only 4% of its LNG from Doha, without this supplier, competition for natural gas from other producers will intensify. Prices and import costs will rise, ultimately accelerating inflation in Japan.
Investors see net energy commodity exporters as beneficiaries of armed conflict in the Middle East. First and foremost comes the US, whose stock markets have lagged behind global markets since the beginning of the year. The S&P 500 index is 9 percentage points behind the global MSCI excluding the United States. In 2025, it was 12 percentage points, which was the largest divergence since 1993.
S&P 500 and Global Stock Market
Source: Bloomberg.
If the US stands to gain from escalating geopolitical tensions, while Europe and Japan lose out, capital will flow from East to West. As a result, not only the Nikkei 225 and TOPIX will suffer, but the Japanese yen will as well.
Meanwhile, Satsuki Katayama said the government was monitoring events in the Forex market with the utmost urgency. According to the finance minister, Japan is ready to intervene in the currency market, including in cooperation with other countries, a clear hint at the US. Rumors of joint action between the United States and Japan helped temper USD/JPY bulls in January. However, the dollar was weak at the time. In early spring, the US currency is gaining traction. Words alone are unlikely to reverse the trend.
The government can only hope that the armed conflict in the Middle East will not last long. According to the Ministry of Trade, Japan has enough LNG reserves to last about three weeks. Donald Trump previously stated that a war with Iran would last 2-3 weeks. If it lasts longer, Tokyo’s troubles will snowball.
Weekly USDJPY Trading Plan
In such conditions, the USD/JPY pair’s rally is likely to continue. Long positions formed at 153.95 and increased at 156.3 can be maintained at least until oil prices continue to rise. If the pair breaks through 157.8 and 158.3, more long positions can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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