Finance
Japan's yen sinks as spike in crude oil overpowers safe-haven appeal
Published by Global Banking & Finance Review®
Posted on June 23, 2025
2 min readLast updated: January 23, 2026
Quick Summary
The Japanese yen is declining due to rising crude oil prices, affecting its safe-haven status and Japan's trade balance.
Japanese Yen Declines as Rising Crude Oil Diminishes Safe-Haven Status
By Kevin Buckland
TOKYO (Reuters) -The Japanese yen, normally one of the most sought after safe havens in times of geopolitical stress, has dropped 2.4% against the U.S. dollar and 1.4% against the Swiss franc since Israel launched missile attacks against Iranian nuclear and military targets on June 13.
CONTEXT
Japan imports almost all its oil, meaning the spike in crude since the start of the conflict threatens to worsen the country's trade balance, diminishing the yen's appeal.
When Russia invaded Ukraine on February 24, 2022, the yen weakened against the dollar on the same day and then lost some 11.5% over March and April.
WHY IT'S IMPORTANT
Speculative positioning is still heavily skewed towards a stronger yen, potentially foreshadowing a major shift by hedge funds as they cover those positions.
The yen exchange rate has a knock-on effect for Japanese stocks as well, with a weaker yen tending to support the market because it increases the value of overseas revenue for the country's heavyweight exporters. However, the effect may be short-lived because of the jump in manufacturing costs from higher energy prices.
For Japan's unpopular government too, a weak yen fans inflation when people are already struggling with higher prices, particularly for rice. That's not a good omen ahead of crucial upper house elections next month.
KEY QUOTES
"A rise in crude oil prices causes a deterioration not only in Japan's trade balance but also its terms of trade, so it fundamentally acts to weaken the yen," Citi analysts wrote in a recent client note, while reiterating forecasts for the yen to weaken to 150 per dollar by September.
With the Bank of Japan also striking a dovish posture at last week's policy meeting, the compounded downward pressure on the yen from oil's rally could be amplified, they said.
(Reporting by Kevin Buckland;Editing by Vidya Ranganathan and Kate Mayberry)
Key Takeaways
- •The Japanese yen has weakened against the US dollar and Swiss franc.
- •Rising crude oil prices are impacting Japan's trade balance.
- •Speculative positioning suggests potential yen strengthening.
- •A weaker yen benefits Japanese exporters but raises costs.
- •Upcoming elections may be influenced by yen-induced inflation.
Frequently Asked Questions about Japan's yen sinks as spike in crude oil overpowers safe-haven appeal
1Why has the Japanese yen weakened recently?
The Japanese yen has dropped due to a spike in crude oil prices, which threatens to worsen Japan's trade balance and diminish the yen's appeal as a safe haven.
2What impact does a weaker yen have on Japanese stocks?
A weaker yen tends to support the Japanese stock market because it increases the value of overseas revenue for the country's major exporters.
3How does the Bank of Japan's policy affect the yen?
The Bank of Japan's dovish stance at its recent policy meeting adds downward pressure on the yen, especially in the context of rising oil prices.
4What are the implications of a weak yen for Japan's government?
A weak yen exacerbates inflation in Japan, impacting consumers who are already facing higher prices, particularly for essential goods like rice.
5How did the yen perform following the invasion of Ukraine?
Following Russia's invasion of Ukraine on February 24, 2022, the yen weakened against the dollar and lost approximately 11.5% over the following months.
