Yen Weakens on Its Own Import Bill

USD/JPY hovered near 159.50 on Monday, with an intraday range of about 75 pips and a net gain of 10 pips; it is currently trading around 159.4225. The dollar index fell below its 200-day exponential moving average during the day and touched its weakest level since June, but the yen did not strengthen significantly as a result, instead continuing to be weighed down by its own import bills.

**Import Costs Boost Dollar-Buying Demand**

Japan is a major importer of Middle Eastern oil and natural gas, with energy priced in dollars, so higher oil and gas prices directly push up Japan's import bills. Market reports indicate that supply tightness triggered by the Iran situation has caused import prices to surge, prompting Japanese companies to buy dollars in large amounts to pay import bills, further intensifying yen depreciation pressure. Traditionally, the dollar and oil prices have a hedging relationship, but currently, the yen is under pressure almost in one direction, no longer strengthening or weakening in response to market conditions.

**Policy Dilemma Constrains Yen Rebound**

The Bank of Japan faces a difficult choice: if it does not raise interest rates, the yen may weaken further; if it does, it could hurt the economy. BOJ Deputy Governor Ryozo Himino said in parliament on Friday that exchange rate movements have a significant impact on the economy and prices. Japanese Finance Minister Katsunobu Kato also spoke on exchange rates on Friday, indicating official attention to yen weakness, but no clear intervention signal has been released.

**Dollar Weakness Does Not Change Yen's Downtrend**

Despite the dollar index breaking below a key technical level and hitting a multi-month low, USD/JPY remains above 159, suggesting that yen weakness stems more from internal structural factors than simply dollar strength. If energy prices stay high going forward, the yen's rebound potential is likely to remain limited.