Tokyo crude oil futures hit 18-year high, one-third due to yen depreciation

Looking at ASML’s equipment sales by destination, China accounted for 23% (14% in the April-June period). The company explained that it expects current production plans will not be able to meet customer demand in 2027 and 2028.

US: Tuesday the 13th saw a slight decline, with mixed results in bank earnings

• The Dow was -0.35% at $51,670, the S&P 500 was -0.02% at 7,805, and the Nasdaq Composite was -0.15% at 27,204

• The semiconductor stock index (SOX index) fell for the fifth consecutive day, down -0.23%. Micron was -3.62% at $953

• The 10-year Treasury yield was 5.217%

• Major bank earnings have begun. Citi’s net income rose to $5.2 billion from $3.8 billion the previous year, yet its stock price fell 5.6%. Wells Fargo was down 3.1%, and JPMorgan was down 0.9%

• Bank of America announced its earnings on the 14th. Due to a fine of over $1.2 billion from the U.S. Treasury Department, its net income fell to $6.9 billion from $8.3 billion the previous year.

Forex, Crude Oil, and Gold

• The dollar-yen was around 158.44 yen at 9:00 PM. This is about 0.15 yen weaker than the New York close on the 13th.

• For crude oil, WTI (November delivery) was $95.90 (+1.87%), and Brent crude (December delivery) was $106.27 (+0.55%). Both values are as of 8:53-8:54 PM.

• Gold (December delivery) was $4,161.7 (-0.37%).

• Bitcoin was approximately $83,500 at 9:00 PM.

Other items to keep in mind

• China’s exports in September were +36.3% at $447.1 billion compared to the previous year. This is the highest monthly figure on record (Jiji Press). September consumer prices were +0.9% (National Bureau of Statistics of China).

• A small fire broke out at the Saudi Aramco headquarters in Dhahran, eastern Saudi Arabia, after an administrative building was attacked. The Saudi Ministry of Energy announced there were no casualties and did not mention any impact on production. The claim that a refinery in Riyadh was also targeted comes only from the Houthi rebels in Yemen.

• Iran’s Revolutionary Guard announced that a container ship had struck a mine and sunk in the Strait of Hormuz. As of 9:00 PM, no third-party confirmation has been found.

• The interest rate for the 5-year government bond auction was 2.4% per annum (Ministry of Finance).

• PayPay Securities resumed trading of Japanese stocks and ETFs on the morning of the 14th. The cause was a system failure at its contractor, Mizuho Securities, and it is not considered a cyberattack.

• World Co., Ltd. and TSI Holdings announced a business integration for March 2027 (this will be covered in today’s ‘Today’s Yardstick’).

Today’s Deep Dive: Tokyo crude oil futures hit 18-year high, one-third due to yen depreciation

1. Surpassed the 2008 record high by just 50 yen

On the 14th, Middle East (Dubai) crude oil futures rose on the Tokyo Commodity Exchange. According to Jiji Press, the figures are as follows.

• Closing price for the core trading contract for delivery in March 2027: 95,410 yen per kiloliter (up 1,460 yen from the previous day).

• Reached a high of 95,900 yen

• Previous record high: 95,360 yen in July 2008.

Comparing closing prices, the difference is 50 yen. This is the highest level in about 18 years and 3 months. Among the 33 industry sectors, oil and coal were the top gainers.

Hearing that ‘crude oil is as expensive as it was in 2008’ makes one worry about gasoline and electricity bills. However, there is a catch here.

2. The price of the yen is ‘price of the dollar × dollar-yen rate’

Global crude oil is bought and sold in dollars. The price of crude oil in Tokyo is roughly determined as follows.

1. The price of crude oil is originally determined in dollars (how many dollars per barrel) 2. That is converted into yen using the dollar-yen rate at that time 3. Since 1 kiloliter is approximately 6.29 barrels, that amount is multiplied

In other words, even if the dollar price is the same, if the yen weakens, the price in yen will rise.

3. When converted to dollars, it is about two-thirds of the 2008 level

Out of curiosity, I converted the two record highs into dollars.

• July 2008: 95,360 yen ÷ 6.29 barrels ÷ approx. 106 yen = approx. $143

• Today: 95,410 yen ÷ 6.29 barrels ÷ 158.44 yen = approx. $96

Although the price is almost the same in yen, it is about two-thirds in dollars. Today’s U.S. WTI (November delivery) is $95.90, which is at almost the same level as the Tokyo price converted into dollars.

On July 11, 2008, WTI hit a temporary high of $147.27 during trading. It is now more than 30% lower than that.

What made the difference is the dollar-yen rate. From about 106 yen in July 2008, it is now in the 158 yen range. It has become about 1.5 times higher.

④ Subtracting the portion due to yen depreciation

So, how much is due to the yen’s depreciation? I tried subtracting it.

If the dollar price (about $96) remains the same and only the dollar-yen rate returns to the 2008 level of about 106 yen, it would be about 64,000 yen per kiloliter. The difference from today’s 95,410 yen is about 31,500 yen.

About one-third of the current yen price is the amount that has accumulated due to the yen’s depreciation since 2008.

⑤ The same pattern appears in the overall price of imports

This is not just about crude oil. The Bank of Japan released the September Import Price Index (2020 average = 100) on the 13th, which was as follows.

When viewed in foreign currency, it is about 1.4 times higher than in 2020. From the perspective of those paying in yen, it is about 1.9 times higher. This difference of about 1.35 times is a rough estimate of the amount added by the yen’s depreciation.

Since imports include transactions paid in yen and currencies other than the dollar, it does not exactly match the movement of the dollar-yen rate. Even so, the pattern of “1.4 times abroad, 1.9 times in Japanese wallets” is the same as for crude oil.

⑥ How to use this information

When you see news about a “record high in yen,” please try dividing it into two parts: ① the dollar price, and ② the dollar-yen rate. Calculated at current levels, the price of crude oil in Tokyo moves as follows.

• If crude oil rises by $1, it increases by about 1,000 yen per kiloliter

• If the dollar-yen rate depreciates by 1 yen, it increases by about 600 yen per kiloliter

1 yen in the dollar-yen rate is equivalent to about $0.6 of crude oil. A 10-yen depreciation of the yen has the same impact as a $6 rise in crude oil. Whether it is gasoline or electricity bills, what we pay is in yen. The news about the dollar-yen rate is just as impactful as the news about crude oil.

I will also note the limitations. The Tokyo price is for delivery about five months from now and is not the actual price of oil today. The dollar-yen rate in July 2008 fluctuated throughout the month, and “about 106 yen” is an approximate figure. Since gasoline prices also include taxes and subsidies, the movement of crude oil is not reflected directly.

Read news about “record highs in yen” by separating the dollar price and the dollar-yen rate.

Today’s Yardstick: Read the “ratio” of a business integration alongside the ratio of stock prices.

World Co., Ltd. and TSI Holdings announced a business integration at 15:30 after trading closed. On March 1, 2027, they will create a parent company, “Infinity United,” to sit above the two firms. The combined sales total approximately 450 billion yen, making it the third-largest apparel company in Japan (Jiji Press).

The shares of the new company that shareholders will receive have been decided as follows.

I compared this ratio with the ratio of the stock prices before the announcement.

• Today’s closing price: World 1,571 yen, TSI Holdings 1,208 yen

• Stock price ratio: 1,208 ÷ 1,571 = approx. 0.769

• Integration ratio: 0.8

TSI stock was priced at approximately 0.77 shares of World stock. In the integration, it will be exchanged for 0.8 shares. Looking at the stock prices before the announcement, it appears that TSI shareholders are receiving a premium of approximately 4%.