Commerzbank expects the Japanese yen to remain under pressure in the coming months as the Iran conflict keeps the Strait of Hormuz closed, sustaining high oil prices and worsening Japan’s foreign trade balance. Elevated fossil fuel costs are portrayed as a drag on the domestic economy, reinforcing near-term headwinds for JPY even as the bank maintains a constructive medium-term bias.
The bank says oil-driven shifts in market pricing have not lifted expectations for the Bank of Japan, while expectations for the Fed and the ECB rise when oil prices increase, widening rate differentials against Japan versus the US and the eurozone. It adds that higher new borrowing is likely to weigh more on JPY than on the US dollar until the conflict ends and support measures are no longer needed. Once the Strait reopens and oil prices begin to fall, attention is expected to turn back to interest rate differentials, although the adjustment is expected to be slow, non-linear, and accompanied by fluctuations even if JPY strengthens over coming months.
Yen Remains Under Pressure Amid Elevated Oil Prices
With oil prices holding firm around $115 a barrel and the USD/JPY exchange rate pushing past 165, we see continued pressure on the yen for the coming weeks. This weakness is directly tied to the ongoing Iran conflict, which is keeping the vital Strait of Hormuz closed and inflating Japan’s energy import bill. The situation makes it difficult to build a case for a stronger yen in the immediate term.
Japan’s latest trade figures, released in May 2026, confirmed another significant deficit, reinforcing how sensitive the economy is to high energy costs. As a major net importer of oil and gas, Japan’s trade balance suffers directly when fuel prices remain elevated. This fundamental economic strain will likely continue to weigh on the yen against its major trading partners.
Divergent Central Bank Responses And Trading Strategies
We see a significant divergence in how central banks are perceived to react to this inflation. While markets anticipate that high oil prices might keep the Fed and ECB hawkish, with their policy rates at 5.5% and 4.75% respectively, they expect the Bank of Japan to maintain its near-zero interest rate policy. This widening interest rate differential makes holding yen deeply unattractive and continues to fuel carry trades against it.
Given this environment, we believe shorting the yen remains the prevailing strategy. Buying out-of-the-money call options on USD/JPY for July or August expiry offers a defined-risk way to position for further depreciation. We also see value in EUR/JPY call spreads to capitalize on the wide interest rate gap with the Eurozone while managing premium costs.
However, we must be alert to any signals of a resolution in the Iran conflict, as this could trigger a sharp and rapid yen recovery. We saw a similar dynamic after the resolution of the South China Sea tensions in 2024, when the yen rallied 4% against the dollar in under two weeks. For this reason, layering in some longer-dated, low-cost yen call options could serve as a prudent hedge against a sudden geopolitical shift.
