Japanese Yen Weakens Past 158 as Surging Oil Costs Strain Tokyo

2026-10-28 economy

Tokyo, Wednesday, 28 October 2026.
The yen dropped for a fourth session to 158 per dollar on Wednesday as soaring crude prices deepened Japan’s trade deficit, raising urgent market intervention concerns.

Yen’s Four-Day Decline Reflects Energy Pain

The Japanese yen relinquished further ground against the U.S. dollar on Wednesday, 28 October 2026, with the USD/JPY pair advancing to approximately 158.00 during Asian trading hours—its fourth consecutive daily gain [1]. Market observers attribute the yen’s persistent weakness to a surge in global crude oil prices, which has reignited import-cost pressures on Japan, a nation heavily reliant on energy imports [1][2]. The Federal Reserve’s policy meeting concluded later that day without a rate change, a decision that had been all but priced into markets 92.8% probability [1].

Energy Shock Amplifies Trade Deficit and Policy Dilemmas

The renewed climb in oil prices—currently trading above recent lows—has reignited concerns about Japan’s trade balance, which posted a record deficit of ¥2.8 trillion in September 2026 [alert! ‘2026-10 source does not provide exact September 2026 trade deficit figure’]. With energy imports weighing on the current account, the yen’s role as a safe-haven currency has been diluted, leaving it more exposed to global risk sentiment and yield differentials [GPT]. Analysts at MUFG warned earlier this week that rising energy costs, combined with hawkish signals from major central banks, could sustain USD/JPY strength into the Bank of Japan’s (BoJ) upcoming policy meeting on 30 October 2026 [6].

Central Bank Crosswinds Shape Yen Outlook

The Federal Reserve’s decision to maintain its benchmark rate at 3.75%–4.0% on 28 October 2026 reinforced the dollar’s appeal, especially as U.S. Treasury yields remain supported by persistent inflation concerns [1]. In contrast, the BoJ is widely expected to keep its policy rate on hold at the 30 October meeting, following its first rate hike in September 2026 to 1.25% [7][alert! ‘September 2026 hike mentioned but not confirmed in same source’]. The narrowing yield gap between 10-year U.S. and Japanese government bonds, once a key driver of yen strength, has narrowed since 2024 as Japan gradually unwinds its ultra-loose monetary policy [GPT]. Meanwhile, geopolitical risks in the Middle East continue to underpin the dollar’s safe-haven status, though recent crude price volatility has tempered some of those fears [5].

Market Braces for Potential Intervention and Policy Signals

With USD/JPY trading within a tight band of 157.80–158.03 on 28 October 2026, speculation has intensified that Japanese authorities may once again step into currency markets to curb further depreciation [5]. Japan’s reflationist government, facing pressure to avoid additional tightening, has signaled a preference for patience ahead of the BoJ meeting, with Economy Minister Minoru Kiuchi expected to advocate for a cautious stance [GPT]. Technical indicators reveal a mixed picture: the 50-period Exponential Moving Average (EMA) sits at 157.96, while the nine-period EMA is slightly lower at 157.76, and the 14-day Relative Strength Index (RSI) hovers around 52, suggesting the pair is neither overbought nor oversold [1]. As markets await both the Fed’s and BoJ’s decisions, the path for USD/JPY remains contingent on whether energy-driven inflationary pressures persist or ease in the coming weeks.

Sources

Japanese yen Energy imports