The Japanese economy is facing the risk of supply shocks and a decline in demand stemming from the war in Iran. However, the Bank of Japan is currently more focused on inflationary pressures and may be overlooking this potential threat. Former Bank of Japan official Nobuyasu Ato points out that the central bank’s recent hawkish communication has led markets to price in a roughly 70% probability of an interest rate hike in April. This expectation stems from soaring oil prices caused by the conflict in the Middle East, as well as a weak yen pushing up import costs, thereby exacerbating inflation. Although the Bank of Japan kept interest rates unchanged in March, policymakers have discussed the possibility of further rate hikes and are concerned that the central bank is lagging behind in its response to inflation. Nobuyasu Ato believes the greater risk lies in shortages of naphtha and petroleum refining by-products, which would deal a severe blow to the economy. He noted that such a crisis is akin to a natural disaster, with the core issue being the disruption of commodity flows rather than the price rises themselves.

The latest US data indicates that the labour market remains stable, but uncertainty stemming from the war in the Middle East is mounting. Last week, initial jobless claims in the US fell to 202,000, below market expectations, suggesting that the short-term employment situation remains relatively robust. However, the ongoing US-Israeli conflict with Iran has pushed global oil prices up by more than 50%, with US petrol prices also rising to their highest level in over three years. This trend is increasing business costs and curbing consumer spending, which may hamper job growth in the future. Economists predict that job growth in 2026 will be weaker than previously anticipated and that the unemployment rate may rise, though the impact of the war on the labour market has yet to fully materialise. The labour market currently exhibits a stagnant state characterised by ‘low hiring and low layoffs’, partly due to reduced labour supply resulting from trade policy uncertainty and tighter immigration policies. On the trade front, the US trade deficit widened to $57.3 billion in February, reflecting a rebound in imports. Import growth was driven primarily by capital goods, crude oil and consumer goods, whilst exports hit a record high, led mainly by industrial goods and energy products. Despite strong export performance, shipping disruptions and restrictions on energy transport may constrain trade volumes in the future. Economists expect trade to continue to weigh on economic growth in the first quarter. The Atlanta Fed forecasts annualised GDP growth of 1.9% for the first quarter, up from 0.7% in the previous quarter. Overall, the US economy remains resilient in the short term, but rising energy prices, trade disruptions and geopolitical conflicts are gradually accumulating downside risks.

On the daily chart, the USD/JPY pair shows the Bollinger Bands narrowing, with moving averages flattening out. The price is oscillating upwards along the middle and upper Bollinger Bands. A death cross has formed on the MACD, indicating a weakening of upward momentum; however, the fast and slow lines remain above the zero line, with no reversal signals observed, suggesting an overall upward trend. The RSI stands at 57, with market participants adopting a wait-and-see approach. On the four-hour chart, the Bollinger Bands are narrowing and the moving averages are flattening. The MACD has returned above the zero line, indicating that the bullish trend remains intact. It is highly likely that the price will rise to near the upper Bollinger Band, at 160.2. The RSI stands at 58, reflecting an optimistic market sentiment. The recommended strategy is to buy on dips.

Trading Direction: Buy

Entry Price: 159.5

Target Price: 161

Stop-loss: 158.5

Support Levels: 158, 157, 155

Resistance Levels: 160, 161, 162