Japan and South Korea are among the Asian nations most reliant on crude oil imports. Japan imports nearly 100% of its crude oil, while South Korea's dependence on oil imports exceeds 90%. Both countries primarily source their oil from the Middle East, requiring transportation through the Strait of Hormuz. In theory, sustained significant increases in international oil prices should noticeably impact the price levels in Japan and South Korea.
However, the reality differs. South Korea's year-on-year Consumer Price Index (CPI) for March rose from 2% to 2.2%, an increase of only 0.2 percentage points, which is considerably lower than the nearly one percentage point rises seen in many European and American countries. Japan's year-on-year CPI also increased modestly from 1.3% to 1.5%, a rise of just 0.2 percentage points, remaining at a relatively low level. From the perspective of inflation data, Japan and South Korea appear largely unaffected by the significant surge in international oil prices. In fact, when excluding the impact of energy and fresh food prices, the core CPI for both countries has even shown a declining trend.
This raises an important question: why have the inflation figures of two countries so heavily dependent on external oil supplies not been noticeably impacted? The answer likely lies in the strategic petroleum reserve releases by the Japanese and South Korean governments, which have managed to maintain relatively stable domestic oil supplies despite international market tightness.
On March 16, Japan released 80 million barrels of oil, equivalent to 45 days of the nation's consumption. Similarly, in March, South Korea announced it would release a total of 22.46 million barrels from its strategic petroleum reserve over the next three months, a substantial amount. These decisive strategic petroleum reserve release policies have significantly improved market confidence and supply-demand conditions.
Nevertheless, strategic petroleum reserves are finite. With the worsening conflict between the United States and Iran and the ongoing deadlock of the dual blockade in the Strait of Hormuz, Japan and South Korea cannot rely indefinitely on strategic reserves to curb energy prices. The depletion of national oil reserves will likely trigger a period of rapidly rising CPI data in both countries.
Yesterday, Japan's Nikkei 225 index reached a historic high of 60,013 points, as concerns about a potential macroeconomic recession due to the Strait of Hormuz blockade seem to have dissipated. South Korea's Kospi index also hit a record high of 6,557 points, indicating extreme optimism in the investment market.
If the war between the United States and Iran had ended, the new highs in Japanese and South Korean stocks might be logical. However, the current situation has merely shifted from mutual bombardment to mutual blockade—a transition from hot war to cold war—which is not necessarily a cause for celebration.
Regarding exchange rates, one US dollar currently exchanges for 1,482 South Korean won. This year's peak was 1,538 won, indicating the current rate is at a relatively high historical level. Over the long term, the South Korean won shows a persistent depreciating trend against the US dollar. The situation for the Japanese yen is even more pronounced, with the USD/JPY rate long maintained near the historically high level of 160 yen per dollar. The yen's depreciation trend against the dollar is widely recognized, and even potential interest rate hikes by the Bank of Japan are unlikely to alter this long-term trajectory.
The fact that inflation rates in Japan and South Korea have not rebounded due to high oil prices implies that their central banks lack the urgency for interest rate hikes comparable to the US Federal Reserve or the European Central Bank. Given this divergence in monetary policy stance, the trend of sustained depreciation of the Japanese yen and South Korean won against the US dollar is highly likely to continue.
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