The Japanese yen's safe-haven properties have become ineffective amid the conflict in the Middle East, depreciating nearly 5% against the U.S. dollar in 12 months. Japan is caught in a policy dilemma. The central bank's delay in raising interest rates suppresses the exchange rate, and energy imports push up imported inflation. Finance Minister Katayama Satsuki has intervened, but the effect is subject to monetary policy. Mid-to-late March will become a key turning point, and attention will be paid to the three major variables of geography, spring wages, and central bank policy.

The Bank of Japan raised interest rates to a 30-year high, but the yen fell instead of rising. The main reason is that policy signals that did not meet expectations were interpreted as one-time adjustments, fiscal expansion eliminated the effects of tightening, and structural difficulties such as trade deficit, low neutral interest rates, and tax system issues were superimposed. The market outlook depends on structural reforms, focusing on asset rotation in the short term, and deploying high-quality enterprises in the medium and long term.