7th July 2026
Japan: Authorities push against a strong dollar and oil
The Iran conflict has triggered fresh policy challenges for Japan. The Ministry of Finance has resumed yen intervention but will struggle to reverse depreciation while the Iran conflict remains unresolved. The Bank of Japan is close to hiking and reconsidering its bond tapering path.
Key Takeaways
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The MoF’s currency intervention is likely to reduce yen volatility, rather than deliver a lasting reversal of recent depreciation pressures, while the dollar remains supported by geopolitical risk and higher energy prices
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Sustained yen appreciation would require a shift in the fundamentals, especially lower geopolitical risk, easing energy pressures, and a more supportive rates backdrop.
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We expect the BoJ to pair gradual interest rate hikes with a slower pace or complete freeze of bond tapering, likely signalling changes to the purchase pathin June and a 25bps rate hike by July.
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Continued coordination between the MoF and BoJ to stabilise the yen and contain pressure in the JGB market amid rising fiscal and geopolitical risks is likely.
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But the backdrop for the yen and JGBs will remain challenging for as long the Strait of Hormuz remains closed.
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