BOJ keeps the door open for more rate hikes even as the Iran conflict adds pressure to Japan’s economy
🟦 BOJ’s latest remarks suggest policy is still leaning hawkish, even as the Iran conflict pushes oil prices higher and makes the business environment more difficult. The key takeaway is that Japan’s central bank does not see this as a reason to step back from policy normalization.
🟨 For an economy heavily reliant on imported energy, higher oil prices and a weaker yen are driving input costs up more quickly. Even so, BOJ believes this shock could feed into underlying inflation more strongly than in the past, as companies are now more willing to raise prices and wages.
🟥 That means the Middle East conflict is not only a growth risk, but also a factor that strengthens the case for further tightening. Markets are therefore leaning toward a scenario where BOJ could deliver another 0.25% hike at the late-April meeting or, at the latest, in June.
🟩 If that scenario is confirmed, JPY could find near-term support, while Japanese equities may continue to face pressure from higher costs and tighter profit expectations.