HSBC analysts note recent Japanese Yen (JPY) weakness is consistent with higher energy prices and Japan’s net Oil and gas deficit, but warns this macro backdrop could shift. They highlights that tighter global financial conditions, falling US Treasury yields and rising risk aversion could quickly trigger a JPY rebound, with USD/JPY direction hinging on US yield dynamics.

JPY weakness may reverse on risk

"The JPY’s recent weakness is broadly understandable, reflecting terms-of-trade headwinds from higher energy prices and Japan’s sizeable net oil and gas deficit (c2.7% of GDP in 2025)."

"However, the bigger risk is a shift in the JPY’s behaviour."

"This could happen if global financial conditions tighten abruptly, in addition to higher equity volatility and falling US Treasury yields."

"Historically, in such situations USD/JPY has declined in the majority of cases (85% of weekly observations since 2006 based on our analysis)."

"If yields continue to rise alongside higher oil prices, USD/JPY is likely to go higher, despite the ongoing FX intervention risk."

"Conversely, if risk aversion intensifies and US Treasury yields fall, potentially driven by mounting growth concerns, the JPY could rebound quickly."

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