Yen weakness and Diesel shortage

The Bank of Japan raised its policy rate 25bps to 1.25% today (Sept 18), the latest step in what Governor Ueda is calling a genuine "regime change" away from ultra-easy policy. On paper, that should be yen-supportive.

Instead, USD/JPY weakened, because the Fed just delivered its own hawkish hike, and futures markets are now pricing three more Fed moves by mid-2027. That keeps the US-Japan rate differential wide even as Tokyo tightens. Add persistent fiscal concerns in Japan and a stubborn trade deficit, and you get a currency that keeps weakening almost regardless of what the BoJ does on its own. Tokyo has already spent ¥15tn+ on FX intervention since late July just to slow the bleeding, a reminder that rate differentials, not headlines, are what actually move currency pairs right now.

Layer on the diesel crisis, and the picture gets more complicated.

Global diesel exports fell ~25% year-over-year in August. It's not a temporary spike, it's structural: years of European refinery closures, Russian export bans following Ukrainian strikes on its refineries, and Strait of Hormuz disruptions have all hit at once, just as Northern Hemisphere winter demand ramps up. In the US, diesel inventories are below five-year seasonal lows despite record refinery runs.

Diesel isn't a niche commodity, it's the fuel of global trade: trucking, shipping, agriculture, construction. When it tightens structurally, freight costs rise, input costs rise, and that inflation pressure lands on central banks already trying to normalize policy without breaking growth.

Currency normalization and energy scarcity, hitting the global economy at the same time. It looks like monetary policy cannot solve these issues, it’s mostly fiscal policy that needs to come to the rescue. But the political cost of doing so, makes it impossible, unless we have a crisis. The world needs inflation to deflate the debt. And it needs to cut spending to reduce deficits. But if they do so, we’ll likely fall into a recession, which combined with inflation, will produce stagflation. If AI adjusts its pace, the white knight effect will vanish. What else is there?

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