[Weekly Market Outlook] Hormuz Blockade Tensions, US Interest Rates at 5.2% vs. Takaichi Administration's Fiscal Discipline—A Complete Scenario for USD/JPY and Cross-Yen …

On the evening of Sunday, October 11, 2026, the foreign exchange market is heading into a tense weekend.

Last week, USD/JPY saw intense volatility, climbing to around 158.36 yen as the US 10-year Treasury yield hit a roughly 24-year high of 5.36%, before being pushed back to the 157.50 yen range following President Trump’s remarks regarding military action against Iran, which triggered a sharp reversal in US interest rates and oil prices.

Even as the weekend began, headlines shaking the market have continued, including US military enforcement of a maritime blockade against Iran, statements regarding the Takaichi administration’s fiscal and monetary policy stance, and the opening of the IMF/World Bank Annual Meetings.

The focus for next week is extremely simple. “Will there be new material to further push up US long-term interest rates, which are remaining high in the 5.2–5.3% range, or will there be data that undermines the premise for dollar buying?” And, “Will the Japanese government and Bank of Japan’s warnings against yen depreciation lead to actual yen buying?”

We will unravel the power dynamics surrounding the market and practical scenarios in detail, focusing on the most important event, the ‘US September CPI (Consumer Price Index),’ scheduled for Wednesday, October 14.

Chapter 1: Key Weekend Headlines and Market Transmission Channels

We will organize the important news released over the weekend and examine how it will spill over into the foreign exchange and interest rate markets at the start of the week.

1. Middle East Situation: Military Tensions Over the Iranian Maritime Blockade Continue

According to weekend reports, the US military attacked and disabled the propulsion systems of merchant ships attempting to leave Iranian ports to break the maritime blockade. Although there were reportedly no casualties among the crew, shipping traffic around the Strait of Hormuz has fallen to just over 70% of normal levels (approximately 10.1 million barrels/day), the lowest level in over two months.

2. Japanese Government: Takaichi Administration Appeals for ‘Moving Away from Reflation and Fiscal Discipline’

Following responses in the extraordinary Diet session, Prime Minister Takaichi stated that ‘the Japanese economy is not in deflation’ and that ‘this is not a phase requiring conventional reflationary policies,’ indicating an intention to respect the Bank of Japan’s independence while closely monitoring exchange rate and price trends to respond flexibly.

3. IMF/World Bank Annual Meetings: Energy Crisis and Expanding Global Debt

The IMF/World Bank Annual Meetings opening this week will focus on energy supply shocks due to the Middle East conflict, persistently high global interest rates, and the expansion of public debt in major countries. While US Treasury Secretary Bessent is expected to be absent and send a deputy, joint statements and remarks by officials regarding international cooperation on energy supply chains and fiscal support will stimulate speculation in emerging market currencies and bond markets.

4. United States: Intersection of Russian Fuel Supply Relaxation Measures and Middle East Risk

The Trump administration has temporarily relaxed some sanctions on Russian fuel and announced measures to expand diesel supply to the global market. The goal is to offset energy supply anxieties stemming from the Middle East and calm inflationary pressures within the US. The next trend in oil prices will be determined by whether Middle Eastern supply constraints or US supply stimulus measures prevail.

Chapter 2: Market Structure Diagram—Three Major Factors Colliding

USD/JPY will start the week with the following three vectors in a state of complex tension.

• The bedrock supporting the dollar: The absolute high level of the US 10-year Treasury yield at around 5.24% and the Japan-US interest rate differential.

• The lid capping the dollar-yen’s upside: Technical resistance waiting around 158.50 yen (daily 200-day moving average), vigilance against actual currency intervention by Japan and the US, and the Takaichi administration’s appeal for fiscal discipline.

Chapter 3: Roadmap of Important Events for Next Week (October 12–16)

Next week features a volatile schedule, ranging from low liquidity early in the week to US inflation and consumption indicators mid-week, and ending with remarks from the Bank of Japan Governor at the weekend.

[Next Week’s Time Schedule (Japan Standard Time)]

・10/12 (Mon): 🇯🇵 Japan Market Holiday (Sports Day) 🇺🇸 US Treasury Cash Market Holiday (Columbus Day *Stock market trading as usual) 🏛️ IMF/World Bank Annual Meetings Begin ➔ Beware of sudden moves triggered by weekend Middle East reports amidst ‘extremely thin trading’ due to the absence of Tokyo and NY bond markets.
・10/13 (Tue):
08:50 🇯🇵 September Corporate Goods Price Index (CGPI)

Time TBD 🇨🇳 China September Trade Statistics
Federal Reserve Board (FRB) official remarks (Governor Waller, etc.)

・10/14 (Wed): ★★★★★ [The Biggest Turning Point of the Week]
Around 10:30 🇨🇳 China September CPI/PPI
21:30 🇺🇸 US September CPI (Consumer Price Index)
04:00 next day 🇺🇸 US Federal Reserve Economic Report (Beige Book)

・10/15 (Thu): ★★★★
08:50 🇯🇵 August Machinery Orders
21:30 🇺🇸 US September PPI (Producer Price Index)
21:30 🇺🇸 US September Retail Sales
21:30 🇺🇸 US Initial Jobless Claims

・10/16 (Fri): ★★★
15:30 🇯🇵 BOJ Governor Ueda Remarks
21:30 🇺🇸 US Import/Export Price Index
22:15 🇺🇸 US September Industrial Production

Chapter 4: Three Major Divergence Scenarios for Dollar-Yen Centered on US September CPI (10/14)

What determines the market’s direction is not the ‘US CPI figure itself,’ but ‘how US 2-year and 10-year yields move after the announcement and whether the dollar index follows.’

What must not be overlooked is ‘Scenario C.’ Since the market has already priced in US long-term interest rates of 5.2–5.3% to a significant extent, if the CPI is strong but long-term rates fail to break above the 5.36% high, it will effectively be a ‘sell the fact’ scenario, causing the dollar-yen to lower its upside.

Chapter 5: Spillover Analysis to Cross-Yen, Emerging Market Currencies, and Gold

Key points for monitoring major assets other than the dollar-yen.

1. Mexican Peso-Yen (MXN/JPY) / South African Rand-Yen (ZAR/JPY)

In an environment where high US interest rates and Middle East risks coexist, capital flight from emerging markets and risk-aversion moves occur simultaneously. Because decoupling—where ‘the dollar-yen rises toward 158 yen, but the peso-yen and rand-yen remain soft, dragged down by their decline against the dollar’—is likely to occur, leaving cross-yen long positions unattended is dangerous.

2. Turkish Lira-Yen (TRY/JPY)

Although there is swap appeal due to the ultra-high policy rate of 37%, it carries inherent risks such as the resurgence of energy import inflation due to high crude oil prices and liquidity measures in the domestic investment fund market. As long as high US interest rates continue, one must always be vigilant about the risk of exchange rate losses eroding swap yields.

3. Gold (XAU/USD)

While demand for safe-haven assets due to escalating tensions in the Middle East is supporting the downside, the structure of high US real interest rates and a strong dollar continues to suppress the upside. The golden rule is not to act impulsively by ‘buying gold unconditionally because of the Middle East crisis,’ but to enter only after confirming a softening in the US 10-year Treasury yield and the Dollar Index (DXY).

Chapter 6: Practical Checklist for the Week Ahead

These are the confirmation steps for judging the market from the start of the week through the weekend.

[Practical Monitoring Steps]

1. Monday morning: Market gaps and initial movements in crude oil and USD/JPY following reports of a maritime blockade in the Middle East during thin liquidity

2. Tuesday morning: Pricing in expectations for a Bank of Japan rate hike following the Corporate Goods Price Index (CGPI)

3. Wednesday night: The direction of the ‘US 2-year Treasury yield’ and the ‘Dollar Index’ immediately following the US September CPI announcement

4. Thursday night: Confirmation of the sustainability of the US economy and inflation via US PPI and retail sales data

5. Friday evening: Whether there is any groundwork laid for additional rate hikes through comments from BOJ Governor Ueda

The core to surviving this week’s market is not ‘the fact that US interest rates are high,’ but ‘whether new material will be introduced that pushes those high rates even further.’

First, let’s calmly look past the noise caused by Monday’s thin trading, and focus all our attention on the signals released by Wednesday’s US CPI.

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