The Japanese yen weakened in Asian trading on Tuesday against a basket of major and secondary currencies, extending its losses for a second consecutive session against the US dollar, as investors continued favoring the US currency as the top safe-haven asset amid escalating geopolitical tensions between the United States and Iran, especially after Tehran rejected the US peace proposal.

The summary of opinions released by the Bank of Japan earlier today showed a clear hawkish tilt and growing preparation for an early interest rate hike, driven by rising inflation risks stemming from the Middle East crisis and the war involving Iran.

Price Overview

• USD/JPY today: The US dollar rose more than 0.3% against the Japanese yen to ¥157.65, from today’s opening level at ¥157.14, while the session low was recorded at ¥157.08.

• The yen ended Monday down 0.3% against the dollar, as renewed profit-taking and corrective selling emerged after the currency touched a three-month high at ¥155.03.

• Beyond profit-taking activity, the yen weakened due to fears of a renewed war between the United States and Iran.

US Dollar

The US Dollar Index rose 0.25% on Tuesday, extending gains for a second straight session, reflecting continued strength in the US currency against a basket of global currencies.

The rise comes as investors continue buying the US dollar as a safe haven amid growing concerns over renewed military confrontation between the United States and Iran, especially after Tehran rejected the American peace proposal.

US-Iran Negotiations

US President Donald Trump said on Monday that the ceasefire with Iran was “close to collapse,” after Tehran’s response to a US proposal to end the war made it clear that both sides remain far apart on several key issues.

Trump also confirmed that he is seriously considering relaunching “Project Freedom,” while announcing plans for an upcoming meeting with a large group of generals and military commanders to discuss available options and strategies regarding the Iranian الملف.

Meanwhile, Iranian Parliament Speaker Mohammad Bagher Ghalibaf said there is no alternative to accepting Iran’s proposal, stressing that Tehran is prepared to respond immediately to any military action.

Global Oil Prices

Oil prices rose nearly 1% on Tuesday, maintaining gains for a second consecutive day amid fears that the Strait of Hormuz could remain closed and continue disrupting global oil supplies.

Higher global oil prices are undoubtedly reviving fears of accelerating inflation, which could push central banks worldwide toward raising interest rates in the near term, marking a sharp shift from pre-war expectations of prolonged rate cuts or policy stability.

Bank of Japan Summary of Opinions

The Bank of Japan’s Summary of Opinions released today showed a clear hawkish shift and growing readiness for an early rate hike, driven by escalating inflation risks tied to the Middle East crisis and the war involving Iran.

Although the central bank kept interest rates unchanged at 0.75%, internal divisions and the emergence of calls for an immediate hike to 1.0% clearly indicate that Japan’s ultra-loose monetary policy era may be nearing its end.

This shift comes as the BOJ was forced to raise its inflation forecast to 2.8% while lowering economic growth projections, pushing yields on 10-year Japanese government bonds to their highest levels in 29 years.

These developments reflect the depth of the challenge facing the central bank as it attempts to balance imported inflation pressures with the need to protect the economy from recession, leaving global markets closely watching for the anticipated rate hike decision.

Japanese Interest Rates

• As oil prices continue rising, markets increased pricing for a quarter-point interest rate hike by the Bank of Japan at the June meeting from 55% to 60%.

• Investors are now awaiting more Japanese data on inflation, unemployment, and wages in order to reassess those expectations.

Oil prices rose on Monday after US President Donald Trump said the ceasefire agreement with Iran was now “on life support” following his rejection of Tehran’s counterproposal to end the conflict.

US West Texas Intermediate crude futures for June delivery climbed more than 3% to $99.11 per barrel by 1:08 p.m. Eastern Time.

Global benchmark Brent crude futures for July delivery also advanced more than 3% to $104.97 per barrel.

Trump told reporters that the ceasefire agreement was now “incredibly weak,” describing Iran’s proposal to end the conflict as “garbage.”

He added: “I can say the ceasefire is fully on life support, like a doctor walking in and saying: Sir, your loved one has maybe a 1% chance of survival.”

WTI and Brent crude prices have now surged more than 40% since the US- and Israel-led war against Iran began on February 28.

Netanyahu: War with Iran is not over

Meanwhile, Israeli Prime Minister Benjamin Netanyahu warned that the conflict with Iran “is not over yet,” fueling fears of further escalation in the Middle East that could pose an even greater threat to global energy supplies.

Speaking during an interview with CBS’s “60 Minutes,” Netanyahu said: “There are still nuclear materials and enriched uranium that need to be removed from Iran.”

He added: “There are still enrichment sites that need to be dismantled. There are still Iran-backed groups, as well as ballistic missiles they still want to produce... there is still more work to be done.”

When asked how the United States and Israel would remove the nuclear materials, Netanyahu replied: “You go in and take them.”

Citigroup: Oil price risks still tilt to the upside

Analysts at Citigroup said in their latest oil market report that prices could climb even higher if Iran and the United States fail to reach an agreement.

They added that oil markets have so far benefited from supportive factors including elevated inventories, releases from strategic petroleum reserves, weak demand across emerging economies, and intermittent signals suggesting possible de-escalation in the Middle East.

However, the bank stressed that oil price risks remain skewed to the upside, given Iran’s significant control over the timing and conditions of any potential agreement to reopen the Strait of Hormuz, one of the world’s most critical energy corridors.

Citigroup analysts said: “Our base case assumes the Iranian regime reaches an agreement to reopen the strait by the end of May... but we still believe the risks point toward delays and/or only a partial reopening, meaning disruptions could last longer.”

Warnings of “demand destruction” and global crises

Felipe Elink Schuurman, CEO and co-founder of Sparta Commodities, said the COVID-19 pandemic offers a useful comparison for current oil market conditions.

Speaking to CNBC, he explained: “In 2020, we lost an average of 9 million barrels per day in demand compared to 2019, which is roughly equivalent to what we are now losing on the supply side.”

He added: “The market will have to adjust, and we will eventually reach a level of demand destruction.”

He continued: “The question now is where this decline in demand will come from. Unfortunately, the result is that wealthy countries will simply pay more.”

Schuurman noted that crude oil prices may not necessarily reach $200 per barrel, but consumer fuel products could still experience persistently elevated prices.

He concluded: “We may end up in a scenario where poorer countries face a humanitarian crisis, Europe faces an economic crisis, and the United States faces a political crisis.”

When lawmakers propose solutions to complex economic problems, the first requirement should be a clear understanding of how those problems actually work.

A recent Facebook post by US Senator Bernie Sanders compared current oil and gasoline prices with levels seen in 2011, arguing that oil companies are “gouging” consumers.

The logic behind the claim is simple: if crude oil prices are similar, gasoline prices should also be similar. And if they are not, then someone must be making unfair profits at the expense of consumers.

That argument may sound intuitive, but it ignores key parts of the picture.

While gasoline prices are strongly linked to crude oil prices, there are many reasons why the two can diverge. Gasoline is a refined product that sits at the end of a long, complex, and often highly stressed supply chain. Focusing only on the price of crude oil overlooks the physical realities that ultimately determine what consumers pay at the pump.

From Crude Oil to Gasoline: A System Under Pressure

The price of crude oil is only the starting point. Between oil wells and gas stations lies a vast network of refineries, pipelines, storage terminals, and transportation systems.

When that system operates smoothly, the relationship between crude oil and gasoline prices remains relatively stable. But when the system comes under stress, the gap between the two can widen significantly.

That is exactly what is happening today.

The Refining Crisis Many Ignore

One of the biggest differences between 2011 and today is refining capacity.

Over the past decade, the United States and parts of Europe have lost significant refining capacity as some refineries shut down, others were converted to renewable fuel production, and investment in the sector weakened. At the same time, demand rebounded sharply after the COVID-19 pandemic.

The result is a system operating with extremely thin spare capacity. Refinery utilization rates are often running above 90%, levels where even small disruptions can have outsized effects.

This is where the “crack spread” comes into play — the profit margin refiners earn from turning crude oil into gasoline and diesel.

When refining capacity becomes constrained, these margins expand, pushing gasoline prices higher even if crude oil prices remain relatively stable.

In other words, there may be plenty of crude oil available, but fuel prices remain elevated because the real bottleneck is not oil supply itself, but the ability to process and refine it.

Wars Do Not Just Raise Prices — They Disrupt Systems

The current geopolitical environment adds another layer of complexity.

Conflicts in key regions, including tensions surrounding the Strait of Hormuz, do not only increase oil prices. They also disrupt logistics.

Shipping routes are altered, insurance costs rise, delivery times increase, and supply chains become less efficient.

Refineries are also highly specialized and designed to process specific grades of crude oil. When geopolitical disruptions force changes in supply sources, refineries may need to use less suitable crude blends, reducing the amount of gasoline produced from each barrel of oil.

This dynamic was also seen after Russia’s invasion of Ukraine, which triggered sharp spikes in diesel and gasoline prices.

These mechanical and physical constraints effectively act as a hidden tax on the system, increasing the cost of producing and transporting fuel even if crude oil prices appear stable in headlines.

The Phenomenon Is Not New — It Is Often Misunderstood

The divergence between crude oil and gasoline prices is not new.

For example, after Hurricane Katrina in 2005, crude oil prices actually declined because damaged refineries could not process available supplies. At the same time, gasoline prices surged due to shortages of refined fuel.

The lesson is simple: the energy system functions as an interconnected chain. If one part breaks down or comes under pressure, the entire system adjusts through prices.

What we are seeing today reflects a similar dynamic, driven not by a natural disaster, but by geopolitical disruptions and structural changes in refining capacity.

Profits Are a Result, Not the Cause

It is true that energy companies are generating strong profits. But those profits are largely a result of higher prices, not necessarily the root cause behind them.

When supplies are constrained and demand remains strong, prices rise. And when prices rise, profits naturally follow.

That distinction matters greatly. If high prices were simply the result of companies arbitrarily charging more, the solution would be straightforward. But when prices are driven by physical constraints, logistical frictions, and global market dynamics, the issue becomes far more complicated.

The Risk of Misdiagnosing the Problem

Policies such as windfall profit taxes are often proposed as solutions to high energy prices. But if the diagnosis is wrong, the cure can worsen the problem.

Discouraging investment in refining and midstream infrastructure does not reduce prices. It tightens capacity further and increases the risk of future price spikes.

If the goal is to reduce fuel costs, the focus should instead be on improving system capacity, reducing bottlenecks, and stabilizing supply chains.

The Bottom Line

Comparing oil prices across different periods without accounting for the broader system leads to misleading conclusions.

Gasoline prices are not determined solely by the cost of crude oil. They are also shaped by refining capacity, logistics, geopolitics, and infrastructure constraints.

If policymakers want to address high fuel prices effectively, they must first begin with a clear understanding of those realities.

Because correctly diagnosing the problem — whether in energy markets or the broader economy — is the first step toward finding the right solution.

Major Wall Street indexes paused their advance on Monday following last week’s record-breaking rally, as renewed concerns over stalled negotiations between the United States and Iran pressured investor risk appetite.

US President Donald Trump’s swift rejection of Iran’s response to a US peace proposal fueled fears that the 10-week conflict could drag on and keep shipping through the Strait of Hormuz heavily disrupted, sending crude oil prices up around 3%.

Even so, higher oil prices have failed in recent weeks to derail the broader market momentum. Both the S&P 500 and Nasdaq closed at record highs on Friday, supported by strong corporate earnings, optimism surrounding semiconductor companies, and a robust monthly jobs report that highlighted the resilience of the US economy.

The S&P 500 and Nasdaq also touched fresh record highs again on Monday, extending gains from the previous session.

However, that resilience may soon face a test as earnings season begins to wind down and investor focus shifts toward Tuesday’s consumer price index report, which is expected to show higher inflation in April amid mounting pressure from Middle East energy prices.

Producer price data and monthly retail sales figures are also due later this week.

Robert Edwards, chief investment officer at Edwards Asset Management, said:

“The list of concerns is long, but the economy continues proving the pessimists wrong.

Big tech companies have reclaimed leadership, supported by strong and growing revenues and earnings. These companies are at the center of every major structural trend.”

By 10:08 a.m. Eastern Time, the Dow Jones Industrial Average slipped 3.54 points, or 0.01%, to 49,605.62, while the S&P 500 rose 11.38 points, or 0.15%, to 7,410.31, and the Nasdaq Composite gained 10.19 points, or 0.04%, to 26,257.27.

Eight of the 11 major S&P 500 sectors traded higher, led by the energy sector with gains of 1.5%.

The materials sector also climbed 1.3%, tracking gains in precious metals prices.

Investors are also watching an upcoming meeting between Trump and Chinese President Xi Jinping later this week, where the two leaders are expected to discuss Iran, Taiwan, artificial intelligence, nuclear weapons, and a possible extension of the critical minerals agreement.

Earnings season is also expected to gradually slow after a strong performance led by the technology sector.

Among the key companies reporting this week are networking giant Cisco Systems and semiconductor equipment maker Applied Materials, while Nvidia and Walmart are scheduled to release results later this month.

Intel shares rose 3.5% on Monday following a 14% surge on Friday after reports of a preliminary chip manufacturing agreement with Apple, while rival Qualcomm jumped 8.6% to a record high.

Meanwhile, Mosaic shares fell 2.1% after the fertilizer company withdrew its annual phosphate production guidance.

Fox Corp shares gained 4% after the media company topped Wall Street estimates for third-quarter revenue.

Elsewhere, several airline stocks declined as higher oil prices threatened profit margins, with Southwest Airlines, Delta Air Lines, Alaska Air, and United Airlines falling between 1.8% and 2%.

Advancing stocks outnumbered decliners by a ratio of 1.05-to-1 on the NYSE and 1.01-to-1 on the Nasdaq.

The S&P 500 posted 27 new 52-week highs against 30 new lows, while the Nasdaq Composite recorded 115 new highs and 91 new lows.