Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Japan economic outlook | Deloitte Insights – Full Analysis.
Oil-price spikes create risks
Japan is highly dependent on energy imports. It imports large quantities of petroleum, including crude oil and refined products, as well as liquefied natural gas (LNG), primarily used for power generation, and liquefied petroleum gas (LPG), which is used for heating, cooking, and industrial purposes. Japan’s crude oil production is negligible relative to its consumption. In 2025, Japan consumed roughly 870 million barrels of crude oil but produced 2.4 million barrels—roughly 0.3% of its total consumption.8
As of mid-March, the price of Brent crude increased by nearly 60% to around US$110 per barrel, relative to February’s average. Over the same period, the Japan-Korea Marker for LNG has risen by approximately 75% to US$20 per million British thermal units (MMBtu). Oil and LNG prices are now approaching inflation-adjusted levels last seen during Russia’s invasion of Ukraine, when, in today’s dollars, Brent reached nearly US$130 per barrel and LNG in Asia reached US$26 per MMBtu.
If prices were to remain at elevated levels, their impact on Japanese inflation could be significant. Our estimates suggest that a sustained oil price of around US$100 per barrel could increase consumer price index inflation by approximately 0.15 percentage points over the next six months. A sustained LNG price of around US$20 per MMBtu could increase inflation by approximately half a percentage point over a similar horizon. These estimates are a lower bound for the total impact as they capture only the direct effects on gasoline and electricity prices and do not account for any knock-on effects that occur when input costs to other consumer goods and services rise.
Another of those knock-on effects is the value of the yen, which hovered just below the psychological threshold of 160 yen per dollar in the second half of March.9 This is roughly 5% to 6% weaker than the currency was just a year earlier. A sudden rise in oil prices, which are denominated in US dollars, typically causes a depreciation in the yen. This can then lead to higher import costs across numerous categories unrelated to energy, thereby adding inflationary pressure. The Bank of Japan has indicated that it is monitoring the exchange rate and its effects on inflation, suggesting that it could become more hawkish if the yen weakens further.10 Even without additional depreciation, the Bank of Japan may opt to raise rates to prevent higher inflation expectations from taking hold.
One upside to a weaker yen is that it often promotes stronger business investment. Exporting companies benefit from the more favorable prices in the international market. In addition, multinational companies are able to book stronger profits when repatriating their earnings. Unfortunately, the higher energy prices likely offset much of this advantage, limiting the upside to a weaker yen this time around.