Ten days ago, Brent crude was $66. On Monday it touched $119.50 before settling around $93. The Nikkei 225 fell 5.2% on Monday. USD/JPY hit 159.14, one tick from what traders regard as the Ministry of Finance intervention threshold. The UST 10-year yield briefly breached 4.21% before pulling back to 4.13%.

And yet the financial system did not crack.

This article examines what Scott Bessent spent to keep it that way, what it reveals about the yen’s role in a crisis, and why his binding constraint — the 10-year yield — is tighter now than it was before the first missile was launched.

In February, I argued that Bessent may have shaped Operation Epic Fury around an economic logic: preserve Iran’s oil infrastructure to keep the option of a supply-side resolution alive. The events of the past ten days have tested that thesis in real time.

What Bessent deployed

The containment toolkit was broad and deployed fast.

On oil supply, the administration signalled it was considering unsanctioning Russian oil exports — a move that directly contradicts the Ukraine leverage strategy but would add barrels to a market short roughly 6 million barrels per day from Hormuz disruption. India and Argentina received waivers. A $20 billion insurance programme for tankers transiting the Strait was announced. The G7 finance ministers convened to discuss coordinated strategic petroleum reserve releases. Japan’s Ministry of Economy, Trade and Industry instructed stockpile preparation for the first time since 1978.

On the narrative, Trump told CBS the war was “very complete” and “ahead of schedule,” and floated seizing the Strait of Hormuz. Oil fell more than $25 from its intraday peak within hours of those comments. The verbal intervention was crude but effective: it broke the spot price’s momentum at the moment it mattered most for the Treasury long end.

On yields directly, the 10-year touched 4.21% intraday on Monday before retreating. The 30-year mortgage rate, Bessent’s true target, had already jumped from 5.99% to 6.14% in the week to March 6. The bear steepening that threatened his framework in January reasserted itself: the 30-year Treasury yield rose to 4.77%, its highest since April 2024, before any of the Fed’s rate cuts.

Every one of these tools carried a cost. Russian oil unsanctioning erodes the leverage Washington holds over Moscow. SPR releases deplete a strategic buffer. The tanker insurance programme commits federal funds to underwrite commercial risk. Trump’s Hormuz ultimatum locks the administration into escalation if Iran calls the bluff. And the verbal intervention worked once — it is unclear whether it works twice.

The yen’s safe-haven failure

The yen was supposed to strengthen in a risk-off event. It did the opposite.

USD/JPY moved from 153 to 159.14 over the course of the crisis, weakening through every session in which equities fell and oil rose. The standard playbook — global shock, capital flows to safety, yen appreciates — failed because Japan imports nearly all of its energy. Roughly 95% of Japan’s oil comes from the Middle East, and approximately 70% transits the Strait of Hormuz.

When oil spikes, Japanese importers become mechanical, price-insensitive buyers of dollars. This forced flow overwhelmed whatever safe-haven bid the yen might otherwise have attracted. The yen weakened into the crisis, not despite the crisis but because of it.

This is not a temporary anomaly. It is a structural feature of Japan’s energy dependence. Any future oil shock originating from the Persian Gulf will produce the same pattern: yen weakness at precisely the moment the textbook says it should strengthen.

For Bessent, this created an uncomfortable feedback loop. He wants a stronger yen to narrow the trade deficit before November. But the crisis he helped set in motion — or at minimum, that his policies contributed to — drove the yen in the opposite direction. USD/JPY at 159 is politically worse than USD/JPY at 153. Finance Minister Katayama, who has said the yen’s fair value is 120–130, was watching the same screen.

The carry trade: stressed, not unwinding

Throughout the crisis, social media was full of claims that a “global margin call” was under way and that the carry trade was unwinding. The data said otherwise.

The JPY basis swap improved from −74 basis points to −18 basis points. Fed overnight repo sat at $9 billion. There was no repo stress, no funding dislocation, no evidence of forced liquidation in the plumbing that matters. The equity sell-off was violent — the Nikkei dropped 2,892 points on Monday — but the financial system’s pipes held.

A genuine carry unwind requires yen strength. It is yen appreciation that forces leveraged positions to cover, triggering a cascade. But the yen was weakening. The carry trade was under stress in the sense that mark-to-market losses were accumulating, but the structural positions — estimated by the BIS at $261 billion in direct exposures, and potentially $4 trillion or more including derivatives — were 85% to 97% intact.

This matters because it means the carry trade remains a live risk. The positions were not cleared. They are still there, waiting for the trigger that actually forces covering: sustained yen strength. If and when Bessent gets what he wants — a meaningfully stronger yen — the carry unwind becomes a real possibility. The Iran crisis was a dress rehearsal in which the main act never happened.

The binding constraint is tighter

Bessent’s framework is simple when you strip it back: UST 10-year yield → 30-year mortgage rate → housing affordability → voter sentiment → midterm elections in November 2026.

Before the Iran crisis, the 10-year was trading around 4.07%. It briefly breached 4.21% on Monday before falling back to 4.13%. The move was contained. But “contained” is not the same as “resolved.”

Markets now expect only one 25-basis-point Fed cut this year, most likely in September, down from two cuts expected a week ago. Oil above $90 feeds directly into inflation expectations, which constrains the Fed’s room to ease. If the Strait of Hormuz remains effectively closed for weeks rather than days, oil stays elevated, the inflation impulse persists, and the rate-cutting cycle that Bessent needs to bring mortgage rates down is delayed or cancelled.

The forward curve tells the story. Brent futures for delivery in 2027 and 2028 are trading in the high $60s. The market believes $90-plus oil is temporary. But Bessent does not need the market to be right eventually. He needs mortgage rates lower by September, when voters start forming the opinions that determine November outcomes.

Every week that oil stays above $90 is a week that the Fed cannot cut, a week that 30-year mortgage rates stay above 6%, and a week that the administration’s economic approval rating — already underwater, with two-thirds of voters saying the administration has fallen short on cost of living — deteriorates further.

What comes next

The crisis is compressing toward resolution. Trump has signalled the war is nearly over. Putin proposed a quick settlement in a one-hour call. France, China, and Russia have all engaged in ceasefire outreach. Iran’s military capability is severely degraded: its navy is destroyed, its missile inventory is down an estimated 90%, and its ability to enforce the Hormuz closure degrades daily as it loses assets.

If the optimistic timeline holds — Strait reopens within days, oil falls back toward $70, a deal framework emerges within weeks — Bessent’s original thesis survives. The oil supply option I described in the earlier article comes into play: Iranian oil re-enters the market, the risk premium evaporates, the Fed gets room to cut, yields fall, mortgage rates decline, and the yen strengthens naturally without aggressive BOJ intervention.

But the timeline is not guaranteed. And the tools available for a second shock are fewer. The Russian oil card has been played. The SPR has been tapped. The verbal intervention has been used. The carry trade was stressed but not unwound, meaning the latent risk is still there.

Bessent held the line. But the line is thinner now, and the distance between 4.13% and the level at which his framework breaks is measured in basis points, not percentage points.

For investors watching Japan

The Bank of Japan meets on March 18–19. The expectation is a hold at 0.75%, but the language will be the signal. “Monitor energy impact carefully” means the oil shock has bought a dovish delay. “Domestic inflation dynamics unchanged” means the April hike remains on the table.

Rengo’s spring wage demands came in at 5.94%, the strongest in decades. Real wages rose for the first time in 13 months. The domestic case for normalisation has not weakened. What has changed is the external environment — and whether the BOJ treats the Hormuz crisis as a temporary supply disruption or a structural shift in the inflation outlook will determine the pace of rate hikes for the rest of the year.

For Japanese equities, the pattern from the past two weeks is instructive. The Nikkei fell 5.2% on Monday, then bounced 2.88% on Tuesday as oil pulled back. The market is trading oil, not fundamentals. When the oil shock fades — and the forward curve says it will — the structural drivers that were in place before the first missile was launched remain intact: corporate governance reform, rate normalisation lifting bank and insurer margins, record shareholder returns, and foreign institutional underweight that has room to correct.

The question is whether the tailwind arrives on schedule or is delayed. Bessent’s answer matters as much as the BOJ’s.

This article reflects my own reading of publicly available information and is not investment advice.

— Gyokuro