Japan faces risks from Iran conflict that complicates BOJ rate path Japan’s economy faces growing risks from a prolonged Middle East conflict that could keep oil prices elevated, threatening its import-dependent economy and complicating the Bank of Japan’s (BOJ) efforts to raise interest rates. Analysts warn that sustained high oil prices could lead to low growth and high inflation, adding pressure on the central bank to balance its monetary policy. Bank of Japan Deputy Governor Ryozo Himino stated that the BOJ will continue raising interest rates but provided no clear timeline for the next hike. He emphasized that the central bank must prioritize necessary actions even amid market volatility, downplaying the idea that uncertainty alone would justify delaying rate increases. Oil prices surged by as much as 13% on Monday as tensions between Iran and Israel escalated, disrupting shipments from the Middle East. Japan, which imports over 90% of its crude oil from the region, is particularly vulnerable. The yen weakened to 156.95 per dollar, nearing the psychologically significant 160 level, which could further strain import costs and fuel inflation. Prime Minister Sanae Takaichi announced that her cabinet is preparing estimates to assess the economic impact of recent strikes on Iran. She pledged flexibility in government responses to mitigate the crisis, stating, “We hope to take necessary steps flexibly to minimize the impact on people’s livelihoods and economic activity.” Japanese shipping firms suspended operations around the Strait of Hormuz after U.S. and Israeli military strikes on Iran. While Japan holds three months’ worth of oil reserves, prolonged disruptions could push up prices for goods and services, hurting already weak consumer spending.#strait_of_hormuz #bank_of_japan #ryozo_himino #prime_minister_takaichi #morgan_stanley_mufg_securities
