MUFG’s Head of Research Derek Halpenny notes that the Japanese Yen was one of the best G10 performers in March and argues it has better prospects than the Pound. He stresses that Japan’s current terms-of-trade shock should be smaller than in 2022, helped by a large Strategic Petroleum Reserve release and policy measures that limit the expansion of Japan’s energy trade deficit.

Support from milder terms of trade hit

"... the US dollar was the top performing G10 currency in March following the surge in energy prices due to the conflict in the Middle East. ut the next best performing were the yen and then the pound."

"We would argue that the yen has the better prospects of sustaining this performance than the UK pound going forward from here."

"Firstly, the terms of trade shock in 2022 for Japan was huge (the 12mth rolling sum of the energy trade deficit went from JPY 10trn to JPY 33trn over a 2-year period from March 2021) but that is unlikely to be repeated this time."

"Under the OECD-agreed crude oil reserve release, Japan has announced that it would release 80mn barrels from its Strategic Petroleum Reserve. Of the total OECED release (400mn barrels) Japan’s release is the second largest after the US."

"So the action from Japan on this occasion will likely mean the terms of trade shock will be considerably less than in 2022. While Japan’s refining capacity has declined it remains in the top ten globally."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)