Hormuz

Energy costs are rising. Interest rates are rising. Raw material costs are rising. All three are happening at once, and all three trace back to the same chokepoint: the Strait of Hormuz, effectively closed since 28 February and still not reopened despite the 8 April ceasefire. In a country that imports 94.2% of its crude from the Middle East, there is no path to consumption growth while this persists. This blog has been bullish on Japan: rising wages, the end of deflation, corporate governance reform. That broad view is not being abandoned. But the hope that the “new Japan” narrative extends to domestic consumption is not supported by the data. The structural reasons why Japan’s policy response is inadequate are explored in a companion piece, The Shrinkflation State. This article traces the macro data and its implications for corporate earnings. ...

Japan’s budget passed. The ceasefire is collapsing. Katayama’s intervention window is open for the first time since she took office.

The incentive structure around US Gulf policy resembles a sold put on regional stability. The licensing portfolio, the 10-year yield and the petrol price all sit on the same side of the strike. The gamma is short. The implications reach the BOJ. This blog has spent the past month tracking Bessent’s financial containment of the Iran crisis: the SPR releases, the unsanctioned crude, the yield curve management. A question that keeps surfacing is whether the Trump Organization’s commercial presence in the Gulf reinforces that containment bias. ...

Japan holds 254 days of oil in reserve. That number has been repeated so often since 28 February that it has become a kind of talisman, proof that the country can absorb anything the Strait of Hormuz throws at it. It is also misleading. On 16 March, Prime Minister Takaichi ordered the largest oil reserve release in Japanese history: 80 million barrels, equivalent to 45 days of domestic consumption. The draw came from both private and government stockpiles and was coordinated with a 400-million-barrel IEA-wide release across 32 member nations. Japan’s contribution was the second largest after the United States. ...

On Thursday Scott Bessent told Fox Business that the administration might “unsanction the Iranian oil that’s on the water.” One hundred and forty million barrels sitting in tankers at sea would be allowed to enter the open market. Buyers in Japan, India, Singapore and Malaysia could purchase the crude without fear of secondary sanctions. The proceeds would flow back to whoever holds title to the cargo. He offered no mechanism for confiscating revenues. No escrow. No condition excluding Iranian entities from the sale. “We’re not intervening in the financial markets,” he said. “We are supplying the physical markets.” ...

Japan has the one capability the Hormuz coalition lacks most. The legal architecture exists. The existential case is overwhelming. The only variable is political will.

On Monday, financial containment appeared to be winning. The Nikkei rallied 2.88%. Oil, which had touched $119 on Brent, collapsed to the high $80s after Trump told CBS News that the war was “very complete, pretty much”. By Wednesday the IEA had announced the largest coordinated oil reserve release in its history: 400 million barrels from 32 member nations. The US contributed 172 million barrels from the SPR. Japan committed 80 million barrels, its first solo reserve release since 1978. Bessent unsanctioned Russian crude stranded on the water, creating additional supply at the stroke of a pen. G7 energy ministers convened in Paris. Trump declared victory. ...

Two days ago, this blog argued that Bessent held the line but the line was thinner. On Tuesday, Iran began laying mines in the Strait of Hormuz. On Wednesday, the IEA announced the largest emergency oil release in its history: 400 million barrels. Brent crude barely flinched, settling around $93. The containment failed. Not because Bessent’s tools were wrong, but because mines changed the physics of the problem. Why mines changed everything The market had been pricing a scenario: Hormuz reopens when the shooting stops. Trump says the war is “very complete.” Escorts arrive. Tankers resume. Oil falls. That was the trade on Monday, when the Nikkei bounced 2.88% and Brent dropped from $119 to $88. ...

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. ...