Yen hits lowest level in 1 year and 8 months… “Crude procurement costs will rise further”

Source

Korea Economic Daily

Summary

It said the yen weakened against the dollar, sending the exchange rate up to the high 159s per dollar.
It reported that higher crude prices and the prospect of a widening trade deficit are accelerating the yen’s decline.
It noted that while a release of petroleum reserves and gasoline-price subsidies will be implemented, expanded fiscal spending could raise concerns about yen weakness and higher crude procurement costs.

Forecast Trend Report by Period

Slips to the high 159s per dollar

“Higher crude prices to widen trade deficit”

Largest-ever release of petroleum reserves

Subsidies to curb gasoline prices

Amid deteriorating conditions in the Middle East, the yen fell to its weakest level against the dollar in 1 year and 8 months.

In Tokyo’s foreign exchange market on the 13th, the yen–dollar rate at one point rose to the high 159s per dollar (meaning the yen weakened). It marked the highest level in about 1 year and 8 months since July 11, 2024. As turmoil in the Middle East drags on and higher crude prices are seen widening the trade deficit, yen selling accelerated.

Finance Minister Katsuyama Satsuki said at a press conference that day regarding the weaker yen, “With crude prices surging, we will be fully prepared, keeping in mind the impact on people’s livelihoods.” Many in the market view recent yen weakness as driven by international developments, making it difficult for Japanese authorities to respond through currency intervention.

The Japanese government will begin subsidizing prices for gasoline shipments starting on the 19th. It said that if gasoline prices before subsidies are 200 yen per liter, the funding needed to bring them down to 170 yen would reach 300 billion yen per month. Minister Katsuyama stressed, “Even if the situation becomes prolonged, we will ensure (the subsidies) do not run out,” adding, “Using this fiscal year’s contingency reserve is, of course, one of the options.”

As of the 9th, Japan’s nationwide average retail gasoline price was 161.8 yen per liter, but in parts of Tokyo it rose to as high as 220 yen within a few days. Japan plans, as early as the 16th, to release petroleum reserves equivalent to 45 days of domestic consumption into the market. That is about 18% of Japan’s petroleum reserves, of which it holds 254 days’ worth.

The Asahi Shimbun noted that if a blockade of the Strait of Hormuz is prolonged, releasing reserves can only be a stopgap. There are also indications that paying gasoline subsidies is not a fundamental solution. The Tokyo Shimbun pointed out that “if Middle East tensions persist and fiscal spending expands as subsidies increase, the yen will weaken and crude procurement costs will rise, pushing gasoline prices even higher.”

Tokyo=Correspondent Kim Il-gyu black0419@hankyung.com