Yen Weakness And Oil Shock
Since the war began, the Japanese yen has lagged other major currencies and is down almost 1% against the US dollar. Japan’s reliance on imported oil means higher energy costs tend to weigh on the yen. BoJ Deputy Governor Ryozo Himino said on Monday the bank could raise rates towards a neutral level even if headline inflation drops below 2%. He did not state when borrowing costs might be increased. Last year, we saw how the escalating Middle East conflict and subsequent oil price surge made the Bank of Japan (BoJ) pause its plans for an interest rate hike. Now in March 2026, that same dynamic between external shocks and domestic inflation is creating clear opportunities. Traders should be looking at volatility as a key theme, using options to play the uncertainty surrounding the BoJ’s next move. The Yen weakness we observed in 2025 has become entrenched, with the USD/JPY cross now firmly above the 155 level. With Japan’s core inflation having remained above the 2% target for over 20 consecutive months, the pressure to act is immense. This sets up a binary outcome for the Yen, making long-dated options strategies like straddles or strangles attractive to capture a large move in either direction.Positioning Around BoJ Policy
Unlike last year, the domestic argument for a rate hike is now compelling, as the recent “shunto” spring wage negotiations point towards salary increases exceeding 4%, the highest in three decades. This strong wage data makes interest rate derivatives, such as futures on Japanese Government Bonds (JGBs), a direct way to speculate on a policy shift. Traders could consider shorting JGB futures to position for higher yields if the BoJ finally abandons its negative interest rate policy. While the intense conflict has de-escalated, Brent crude prices have found a new floor around $85 a barrel, which continues to weigh on Japan’s import-heavy economy. This persistent cost pressure could still give the BoJ a reason to delay a rate hike, similar to its reasoning in 2025. Monitoring oil futures is therefore crucial, as another spike could signal a profitable trade for those positioned for continued Yen weakness and low rates. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
