If oil supplies continue to be disrupted, will the yen fall to 175?

UBS believes that even if Japanese officials continue to strengthen verbal interventions, if the oil price shock persists, the yen’s downward trend may be difficult to halt.

On Wednesday, April 1, UBS strategists warned in a report that under an extreme scenario where oil prices surge sharply, the USD/JPY could rise to 175 by year-end. Japan’s foreign-exchange intervention measures at that time may backfire and be unable to reverse the yen’s weak trend.

During Thursday’s Asia-Pacific session, Wall Street Observed mentioned that in Trump’s nationwide phone remarks, he “did not send a clear de-escalation signal” regarding the Iran situation, quickly dispelling earlier market optimism that the conflict would end swiftly. The USD/JPY rapidly recovered most of this week’s losses, once again approaching the 160 level.

Last Friday, the USD/JPY exchange rate for the first time since 2024 broke above the 160 threshold, prompting a series of warnings from Japanese policy officials.

Atsushi Mimura, head of the Ministry of Finance’s Foreign Exchange Affairs, warned of the risks of “decisive action,” Bank of Japan Governor Kazuo Ueda reiterated that exchange rate movements are a factor in monetary policy considerations, and Japan’s Finance Minister Satsuki Katayama also stated that she is prepared to respond at any time. These broad, coordinated statements demonstrate that authorities are highly vigilant about further yen depreciation.

Intervention in a stagflation environment may backfire

UBS strategist Shahab Jalinoos and his team pointed out that if oil prices rise to around $150 per barrel, using foreign-exchange interventions to curb inflation could have the opposite effect. The report stated:

This (foreign-exchange intervention) may only provide the market with a higher yen selling price level, at the cost of depleting foreign exchange reserves, and may not necessarily alter the trajectory of the exchange rate.

UBS believes that in this scenario, the authorities’ measures to control inflation may shift more toward fiscal policies—such as energy subsidies—rather than relying on foreign-exchange interventions.

The report depicts an even more pessimistic “persistent shock” scenario: if the global economy enters a stagflation environment, markets may interpret that Japanese policymakers have no intention of preventing the yen from continuing to depreciate.

Under this assessment, the deterioration in trade conditions would drive USD/JPY significantly higher, with a year-end target of 175.

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