BoJ Flags Energy-Driven Inflation Risk in March Minutes

Bank of Japan Deputy Governor Ryozo Himino said the central bank remains committed to further interest-rate hikes, though the timing and pace will depend on how the Middle East conflict affects Japan’s economy and inflation. Speaking before a parliamentary committee on Tuesday, Himino stressed that Japan’s real interest rates remain “at extremely low levels,” adding that the BoJ will “continue to raise the policy rate and adjust the degree of monetary accommodation in accordance with economic, price, and financial developments.” However, he avoided signaling when the next rate increase could occur, noting that policymakers are closely monitoring the economic and price impact of geopolitical tensions in the Middle East. Himino also said the central bank aims to maintain market credibility through appropriate monetary policy management and the stable achievement of its inflation target.

Policymakers at the Bank of Japan stayed cautious about the uncertain Middle East situation at their April meeting, though several members still saw scope for near-term interest rate hikes. One official said there was “no need to take hasty action,” but argued the central bank should raise rates soon unless there are clear signs of an economic slowdown. Another member said “it is quite possible” the board could hike rates from the next meeting onward, even if uncertainty surrounding the Gulf conflict persists, while a third warned the central bank may need to accelerate tightening “without hesitation” if upside inflation risks intensify. Some members stressed that while downside risks to growth and upside risks to prices could both rise, policy should focus on preventing inflation from overshooting and hurting the economy later on. At the April 27–28 meeting, the BoJ kept its policy rate unchanged at 0.75% but raised inflation forecasts due to soaring oil prices linked to the Iran war.

Many Bank of Japan board members saw a need for further rate hikes should the Iran war-driven energy shock persist and fuel broader inflation pressures, minutes from the March meeting showed. While policymakers agreed temporary supply disruptions from Middle East tensions could be overlooked, they cautioned that a prolonged rise in energy costs risked second-round effects on expectations and underlying prices. One member urged raising rates “without long intervals,” while another pressed for tightening “without hesitation” if the economy avoided major damage. The BoJ left its short-term policy rate unchanged at 0.75% at the March 18–19 meeting, the first after U.S.–Israeli strikes on Iran. At its April gathering, the central bank again held steady, though a more hawkish divide underscored growing concern over mounting inflationary pressures from higher fuel costs and lingering price gains.