BOJ chief pushes rate hike debate despite Iran war risks

Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank must thoroughly discuss the advantages and disadvantages of raising its policy interest rate at its upcoming monetary policy meeting later this month, even as uncertainty persists over the Middle East situation.

Ueda said the central bank considers it necessary to base future policy decisions on the assumption that Japan may be entering a situation where “secondary spillover effects of inflation stemming from higher crude oil prices are more likely to lead to upward deviation in underlying inflation,” News.Az reports, citing Kyodo.

He warned that such an inflationary uptick could place downward pressure on the economy, including through a decline in the real purchasing power of households.

Ueda also noted that long-term interest rates could rise if financial markets begin to believe that the Bank of Japan may not take adequate steps to address rising prices.

He further said that if the central bank delays an appropriate response to increasing prices, it could eventually be forced to implement a substantial interest rate hike, which “could inflict a heavy burden not only on the economy but also on the financial markets and the financial system.”

At the next monetary policy meeting scheduled for June 15–16, the BOJ will decide whether to raise its key policy rate, which currently stands at 0.75 percent. Some policymakers have already taken note of growing inflation risks in Japan linked to the war launched by the United States and Israel against Iran on Feb. 28.

The Bank of Japan previously raised its policy rate in December as part of its effort to normalize monetary policy after a decade of unconventional monetary easing, which formally ended in March 2024.

News.Az 

By Nijat Babayev