Oil prices rose sharply On March 21. Light crude for April delivery rose $7.42, or 7.09%, to settle at $112.12 a barrel on the New York Mercantile Exchange. London Brent crude for May delivery rose $7.69, or 7.12%, to settle at $115.62 a barrel. With the geopolitical tensions and evolving risks arising from the Russia-Ukraine conflict, international crude oil prices continued to fluctuate, once reaching a high of $139 / barrel, but are still hovering around $110 / barrel.

The surge in international oil prices has a negative impact on the Japanese economy, which relies on energy imports to reach 88 percent. Recently, Japanese Prime Minister Fumio Kishida publicly said that rising oil prices have begun to affect the Japanese economy.

First, prices in Japan are under severe pressure due to soaring international oil prices. The Bank of Japan (BOJ) said prices in Japan have risen markedly since the beginning of this year due to the conflict between Russia and Ukraine and soaring prices of crude oil and other resources, and prices are expected to increase significantly after April. Most notable was the nine-week rise in Japanese gasoline prices, which rose to around 174.60 yen per liter, the highest level since the 2008 global financial crisis. In addition, Japanese food prices are also rising, due to wheat flour and beef prices, McDonald's Japan announced a wave of price increases since late March, including hamburger, Chicken McNuggets and other 20% of the goods, increased by 20%. Prices for basic public services of daily life are also rising, with electricity, gas and water rising 27.5 per cent in Japan.

The surge in oil prices has also affected Japan's foreign trade balance. Japan's trade deficit hit y668.3bn in February, the seventh consecutive month of deficit, according to trade statistics released by the finance ministry. The finance ministry said the trade deficit was wider than expected, mainly because of a surge in energy-driven import costs, while Japan's overall export growth in February was also slightly lower than expected.

Second, the earth's crust near Japan is also unstable. The 7.3 magnitude earthquake off the coast of Fukushima Prefecture in Japan on The night of March 16 led to the shutdown of several power plants, including the Tokyo Electric Power Company (TEPCO) located in the prefecture's "Hirobuli Power Plant" unit 6, and has not been able to restore power supply. As a result, Koichi Hagiuda, Minister of Economy, Trade and Industry of Japan, said on March 22 that the electric power supply within the area of Tokyo Electric Power Company is extremely difficult. At present, the temperature drops. During the difficult period of power supply, he called on the society to "reduce the set temperature of heating and so on to maximize energy saving". Tokyo Electric Power Co. (TEPCO) warned On March 21 that power shortages would continue in the short term as it will take some time for power plants damaged in the earthquake to be restored. In addition, honshu island east coast mibu technology companies, can be regarded as the Japanese semiconductor industry, including Renesas Electronics, SONY, Shin-etsu Chemical, SUMCO, Toshiba, Kaixia and other production bases in this. At present, Renesas, Global spherulite, Kaixia, Murata and other companies have plant shutdown due to the earthquake, are assessing the impact of the supply chain. The earthquake brought about a semiconductor production cut will undoubtedly make Japan's exports "worse".

In addition, the Bank of Japan recently judged that the recovery in consumption had "paused" due to a surge in omichron infections in Japan. A new wave of infections hit Japan in early February, when the daily number of confirmed cases reached a record 100,000. Since March, the epidemic in Japan has gradually eased, but the number of confirmed cases is still at a high level. The number of new infections in Japan reached 39,659 on March 20, with 66 deaths, according to official data. The bank of Japan warned that the current pick-up in private consumption, particularly in services, had stalled. In addition, the consumption concept of the Japanese young generation is also changing, from "buy all over the world" in the economic boom 30 years ago to "Danshari" now, which has a restraining effect on Japanese consumption. At the same time, business investment is also falling, with supply disruptions and containment curbs crimping consumption and production.

Faced with rising prices across the board, many Japanese people want higher incomes, and Japan's labor unions are demanding higher wages. However, it is difficult for many companies to raise wages in the face of the sluggish economic outlook. One business owner said, "The current inflation will make it more difficult for companies to raise wages due to falling profits." Just as the Bank of Japan is unable to raise the interest rate even when the Federal Reserve starts to raise interest rate cycle and tighten monetary policy, the structure and development status of Japan's economy determine that Japan can only continue to take easing measures. The Bank of Japan on March 18 said it would keep its massive stimulus measures unchanged, keeping short-term interest rates at minus 0.1 percent and keeping long-term interest rates around zero by buying long-term government bonds, warning that the conflict between Russia and Ukraine posed risks to Japan's fragile economic recovery.

The yen hit a six-year low of 120 against the DOLLAR on March 22nd, and the euro, British pound, Australian and Canadian dollars have all risen sharply against the Japanese currency, amid international worries about the country's economic outlook and expectations that the Bank of Japan will remain on course to ease policy. The yen's decline from 100 to 120 has been followed by unusual years, such as 2001, 2008 and 2018. A weak yen will benefit Japanese exporters and globally focused companies, but for consumers and small businesses, it will exacerbate their woes as import prices continue to rise, reducing the appetite for domestic consumption. A weaker yen also makes it more expensive for Japan to import commodities, including international crude oil, further contributing to the deficit.

Taken together, a growing number of economists expect Japan's economy to contract again this quarter.