USD/JPY rises as Oil supply fears and firm USD keep Yen under pressure

USD/JPY extends gains on Wednesday as the Japanese Yen (JPY) remains under pressure amid concerns over Oil supply disruptions linked to the US-Iran war, as Japan relies heavily on imported energy, particularly from the Middle East.

At the time of writing, USD/JPY is trading around 158.82, climbing back toward levels seen before reports of a “rate check” on January 23.

Meanwhile, a resilient US Dollar (USD) and higher Treasury yields are adding to the Yen’s weakness, with the Greenback gaining further support after US inflation data came in line with expectations.

The Consumer Price Index (CPI) rose 0.3% MoM in February, matching market expectations and accelerating from 0.2% in January. On an annual basis, headline CPI held steady at 2.4% YoY, also in line with forecasts.

Core CPI, which excludes volatile food and energy prices, rose 0.2% MoM in February, slowing from the 0.3% increase recorded in January, while the annual rate held steady at 2.5%.

The data reinforced the view that the Federal Reserve (Fed) will maintain a cautious policy stance, as inflation continues to trend above the Fed’s 2% target. Attention now turns to the upcoming Personal Consumption Expenditures (PCE) inflation report on Friday, which could shape monetary policy expectations in the months ahead.

At the same time, Oil-driven inflation risks tied to the Middle East conflict are shaping interest-rate expectations, as elevated energy prices could push the Fed toward a more hawkish stance, while expectations are also growing that the Bank of Japan (BoJ) may delay further rate hikes.

A Reuters poll published on Wednesday showed that the BoJ is widely expected to leave its key interest rate unchanged at 0.75% at the March 19 meeting, although about 60% of economists expect the policy rate to reach 1.00% by the end of June.

However, in an effort to stabilize markets, the International Energy Agency (IEA) agreed to release around 400 million barrels of Oil from strategic reserves, with G7 nations backing coordinated measures to ease supply disruptions.

Separately, geopolitical headlines continue to drive market sentiment. US President Donald Trump said on Wednesday that the war with Iran could end “soon,” telling Axios in a brief phone interview that there is “practically nothing left to target.”