Japan’s Takaichi: Difficult to say now how Middle East conflict might affect Japan's economy
Japan Prime Minister Sanae Takaichi said on Monday that it’s hard to say how the conflict in the Middle East could affect Japan's economy.
Key quotes
Difficult to say now how Middle East conflict might affect Japan's economy.
Many citizens are worried about rising gasoline prices; government scrutinising what steps it can take.
Any steps government takes to mitigate impact from conflict likely will not involve changes to fiscal 2026 budget.
Government considering using reserves to ensure gasoline prices do not rise to levels intolerable for households.
Currently not thinking of taking additional budget steps as there are reserves we can tap under fiscal 2025 and 2026 budgets.
Market reaction
At the time of writing, the USD/JPY pair is trading 0.30% higher on the day at 158.35.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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