Recently, I have been paying close attention to the trend of the US dollar against the Japanese yen and have noticed an interesting phenomenon. When the Middle East situation heated up last year, the USD/JPY rate approached the psychological level of 160. At that time, the Japanese finance department repeatedly hinted at intervention at this level, but the market did not seem to be intimidated.

Speaking of which, the logic behind this is actually quite complex. After the Middle East negotiations broke down, the U.S. military announced a maritime blockade of Iranian ports, which directly caused WTI crude oil to surge over 10%, breaking the $100 mark. Oil exports were obstructed, and global energy prices soared accordingly, with crude futures even exceeding $140. This was a disaster for energy-importing countries like Japan.

Over 95% of Japan’s imported crude oil comes from the Middle East, so rising oil prices directly increased import costs. Even more painfully, the yen was also depreciating at the same time. According to data from the Bank of Japan, at that time, the yen against the dollar was about 33% weaker than during the 2008 oil price peak. What does this mean? The price of crude oil per barrel in yen increased by 9,500 yen compared to the previous month. The yen’s depreciation combined with rising oil prices caused Japan’s import-driven inflation pressure to explode instantly.

The Bank of Japan naturally wanted to raise interest rates to curb prices, and indeed, the yield on Japan’s 10-year government bonds rose to 2.5%, hitting a 29-year high. But there is a paradox—Japan is facing supply-side inflation, not demand-side. Raising interest rates can suppress demand but cannot curb rising import costs. Moreover, if the central bank raises rates sharply, carry trades might reverse, posing huge risks to the global economy.

I noticed that a former senior foreign exchange official in Japan pointed out at the time that relying solely on foreign exchange reserves to intervene in the currency market can only have short-term effects. To truly curb the yen’s depreciation trend, the central bank and government policies must work together. But achieving this coordination under high oil prices and inflationary pressures is indeed quite challenging.

From a technical perspective, the daily chart of USD/JPY at that time showed a steady upward trend, and the 160 level seemed difficult to resist. If it breaks through 160, the market expects a challenge at the 163 level. Unless it falls below 157, the upward trend will be hard to reverse.

This case actually reflects a bigger issue: geopolitical shocks, energy crises, currency depreciation, and inflationary pressures are intertwined, creating multi-dimensional impacts on the Japanese economy. Behind the yen’s depreciation is a structural imbalance. Short-term interventions may be effective, but in the long run, it still depends on whether the Bank of Japan can truly push for policy normalization.