Oil has again become a decisive force in global currency markets. After falling sharply in June, crude prices rebounded through July as renewed Middle East hostilities threatened shipping and physical supply. The pound and the yen both face the same basic problem: more expensive fuel raises inflation, reduces household purchasing power and weakens economic growth. Yet the damage is not evenly distributed. Current energy, trade and policy data indicate that the yen is the more directly exposed currency, while sterling has somewhat stronger buffers but remains vulnerable if the shock lasts.
What happened, and when?
The sequence matters because June inflation data describe conditions before the latest oil surge. The International Energy Agency said in its report published on July 10 that benchmark crude had fallen heavily in June as Gulf tanker traffic recovered, but prices began rising again after a ceasefire was breached on July 7 and 8. On July 22, renewed attacks and tanker diversions pushed oil to a six-week high. On July 23, Dated Brent reached $105.70 per barrel, according to LSEG data cited in a Reuters report published on July 24. Front-month Brent later retreated below $100 on July 24 as markets considered the possibility of renewed diplomacy, showing how quickly the risk premium can reverse.
The currency response was unequal. Reuters reported on July 24 that the yen was heading for its largest weekly percentage decline in more than two months and remained close to 40-year lows against the US dollar. Sterling was also under pressure and appeared likely to end a three-week winning run, but its decline was less severe. That contrast is important for GBP/JPY: the cross is influenced not only by whether oil is harmful, but by which economy and central bank are perceived as less able to absorb the shock.
Why the yen is more exposed
Japan’s vulnerability begins with energy dependence. The country’s latest official energy material puts its self-sufficiency rate at only 15.3%, the lowest among the Group of Seven, while government analysis says more than 90% of Japan’s crude oil requirements come from the Middle East. A disruption in that region therefore affects Japan through both price and physical-supply channels.
The exchange rate can amplify the problem because crude is generally priced in US dollars. When the yen weakens at the same time that dollar-denominated oil becomes more expensive, Japanese importers face a double increase in local-currency costs. That can reduce corporate margins, lift transport and utility expenses and weaken real household income.
Recent trade data already show pressure. Japan Customs released provisional June figures on July 22 showing imports up 25.4% from a year earlier, faster than the 19.3% increase in exports. Because imports exceeded exports, the month produced a goods-trade deficit of about ¥407 billion. The data do not prove that oil alone caused the deficit, but they demonstrate how rapidly a higher import bill can affect Japan’s external balance.
The Bank of Japan has explicitly identified this mechanism. In its April outlook, published on April 30, the central bank said higher crude prices were likely to weaken corporate profits and household real income through a deterioration in Japan’s terms of trade. It assessed risks to fiscal-2026 growth as tilted downward and risks to prices as tilted upward. On June 16, the BOJ raised its overnight-rate guideline to around 1.0%, but that remains far below the Bank of England’s rate and leaves Japan with a difficult choice: tighter policy may support the yen, while higher borrowing costs can add pressure to an economy already facing an imported energy shock.
The pound is vulnerable, but it has buffers
The United Kingdom is not protected from expensive oil. Government energy statistics published on June 30 showed that net import dependency reached 47.1% in the first quarter of 2026, while fossil fuels supplied 76.6% of energy needs. Domestic oil production fell 7.2% from a year earlier and remained 45% below its 2019 level. This means higher international prices still feed into fuel, freight and business costs.
However, the UK’s exposure is less concentrated than Japan’s. Britain retains domestic oil and gas production, diversified maritime supply routes and a larger domestic energy base. These do not eliminate the inflation shock, but they reduce the degree to which one import corridor determines the entire energy bill.
The monetary-policy starting point also differs. The Bank of England held Bank Rate at 3.75% on June 18. The relatively high rate can support sterling through interest-rate differentials, particularly when investors expect the bank to keep policy restrictive because of inflation. This creates a partial currency cushion that the yen does not currently possess to the same extent.
That cushion comes with a cost. UK consumer inflation slowed to 2.6% in June from 2.8% in May, according to data released by the Office for National Statistics on July 22. Transport, especially motor fuels, helped produce the decline. Because the latest oil rebound occurred after most June prices had been recorded, the release may understate the inflation risk now facing households and the Bank of England. If expensive oil persists, sterling could face a stagflationary mix of higher inflation, weaker consumption and slower growth, even if rate expectations initially support the currency.
Who is more vulnerable?
On balance, the yen appears more vulnerable to the current oil shock. Japan imports a much larger share of its energy, relies heavily on Middle Eastern crude and is absorbing the shock through an already-depreciated currency. The latest trade figures and the BOJ’s own assessment both support the conclusion that higher oil prices can weaken growth and worsen the terms of trade at the same time.
The pound’s risk is different. Sterling is less exposed to a direct energy-import spiral, but it can still weaken if high oil undermines growth, forces households to cut spending or creates concern that inflation will remain above target. The Bank of England’s higher policy rate may offer support, yet it cannot produce energy or prevent a squeeze on real income.
What remains unknown
The central uncertainty is the duration of the disruption. The IEA and the US Energy Information Administration have both stressed that oil forecasts depend heavily on assumptions about Middle East supply and shipping. Emergency stock releases, higher production outside the Gulf, weaker demand and successful diplomacy could reduce prices quickly. Additional attacks, shipping restrictions or damage to infrastructure could instead extend the shock and exhaust available buffers.
Policy decisions will also matter. The Bank of England is scheduled to publish its next decision on July 30, while the Bank of Japan meets on July 30 and 31. Markets will examine whether officials treat oil mainly as a temporary price-level shock or as a threat to broader inflation expectations. A stronger anti-inflation response could support a currency through higher yields, but it could also deepen growth concerns.
For traders following GBP/JPY, the clearest current conclusion is relative rather than directional: expensive oil is negative for both economies, but the yen carries the larger immediate structural burden. That assessment could change quickly if oil falls, Japan’s authorities stabilize the currency or the BOJ delivers a stronger policy response than markets expect. This article is informational and does not provide a trading instruction, price target or promise of returns.