Japan’s Oil Dependence Weakens the Yen’s Safe-Haven Appeal

Japan’s heavy reliance on Middle Eastern energy supplies is limiting the Japanese yen’s traditional role as a safe-haven currency during periods of geopolitical uncertainty, according to a report by Standard Chartered.

The bank said that the Japanese Yen may not provide the same level of protection for investors during the current regional tensions, given Japan’s vulnerability to potential disruptions in oil supply routes.

Japan is one of the world’s largest energy importers and relies heavily on foreign supplies to meet its energy demand.

According to the report, the country imports around 95% of its crude oil and about 11% of its liquefied natural gas from the Middle East, leaving its economy exposed to supply risks stemming from geopolitical instability in the region.

Approximately 70% of Japan’s crude oil shipments pass through the Strait of Hormuz, one of the world’s most critical shipping lanes for global energy trade.

This dependency increases the risks facing Japan’s economy in the event of disruptions to maritime traffic or energy flows.

Because of this structural reliance on imported energy, Standard Chartered believes the yen may struggle to attract strong safe-haven flows during the current tensions in the Middle East.

The report noted that investors typically flock to currencies tied to economies that benefit from rising commodity prices or have lower exposure to supply disruptions.

The bank expects the USD/JPY currency pair to remain largely range-bound between 154.8 and 159 in the near term.

While escalating tensions could initially push the pair higher, sharp market movements might prompt the Bank of Japan or the Japanese government to intervene in the foreign exchange market to stabilize the currency.

According to the bank’s technical outlook, the pair faces resistance near the 159 level and support around 154.8, suggesting limited room for sustained moves beyond this range in the short term.