USD/JPY trades near 158.10 on Monday, gaining slightly as markets respond to escalating geopolitical tensions in the Middle East and sharp fluctuations in global energy prices. The pair remains supported by a stronger US Dollar and the negative impact of rising Oil costs on the Japanese economy.
Crude Oil prices jumped significantly after weekend air strikes conducted by the United States and Israel targeted Iranian facilities. The price of West Texas Intermediate (WTI) crude remains roughly 15% higher near $101 per barrel, though it has retreated from an intraday peak close to $113. The pullback followed reports that members of the G7 and the International Energy Agency may consider releasing emergency Oil reserves to stabilize the market.
Higher energy prices typically weigh on the Japanese Yen because Japan relies heavily on imported energy. Rising import costs can worsen the country’s trade balance and place additional pressure on economic growth.
Japan’s Prime Minister Sanae Takaichi acknowledged that households are increasingly worried about rising gasoline prices. She stated that the government is examining possible measures to ease the burden on consumers but noted that it remains difficult to gauge the full economic impact of the ongoing Middle East conflict.
On the domestic data front, investors are awaiting revised fourth-quarter Gross Domestic Product figures, scheduled for release Tuesday. Economists expect the updated data to show growth of around 0.3%, an improvement from the preliminary estimate of 0.1%. A stronger revision could provide some support for the Japanese Yen in the near term.
Meanwhile, the US Dollar continues to benefit from risk-off sentiment and elevated energy prices. The US Dollar Index, which tracks the Greenback against a basket of major currencies, remains firm around 99.35. Investors have also trimmed expectations for near-term interest rate cuts from the Federal Reserve as rising Oil prices threaten to keep inflation elevated.
Markets now look ahead to the upcoming US inflation report for additional clues about the policy outlook.
Trade idea:
Buy on dips near 157.30 targeting 159.50; stop below 156.60 as softer US inflation or easing geopolitical tensions could trigger a pullback in USD/JPY.