Bank of Japan keeps policy rate steady while raising inflation forecast on Iran war worries
The yen rose on Monday, helped by comments from Bank of Japan Governor Kazuo Ueda that left the door open for a rate hike in the near term.
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While Japan’s central bank kept its policy rate constant at 0.75% on Tuesday, it revised its inflation forecasts upwards as the Iran war increased supply-side risks.
The decision to keep interest rates steady came by a 6-3 vote and was in line with forecasts by analysts in a Reuters poll. Opposition members suggested raising the policy rate to 1%, arguing that tensions in the Middle East and abroad were shifting price risks upward.
Bank of Japan also lowered its growth forecast It raised it to 0.5% from 1% for fiscal 2026 and sharply raised its core inflation outlook to 2.8% from 1.9%.
The bank warned that Japan’s economic growth is likely to slow as the rise in crude oil prices due to the Middle East crisis is expected to affect corporate profits and real household incomes “through factors such as the deterioration in the terms of trade.”
there was japan Tech narrowly avoids recession In the last quarter of 2025, the country’s economy experienced growth of 0.3% compared to the previous quarter and a revised 1.3% annual rate.
Inflation in Japan accelerated for the first time in five months, rising to 1.8% in March as the Iran war fueled concerns about energy prices.
Headline inflation was 1.5%, compared to 1.3% in February, and remained below the central bank’s 2% target for the second consecutive month.
The “core” inflation rate, which excludes both fresh food and energy prices, fell to 2.4% from 2.5% in February, marking its lowest level since October 2024.
BOJ said, “The increase in crude oil prices is expected to increase prices, especially energy and goods, and moves to reflect wage increases on sales prices continue.” he said.
The BOJ’s decision came at a time when government bond yields were rising. The benchmark 10-year Japanese government bond yield reached its highest level since 1997 at 2.496% on April 13.
A. Bank of Japan survey A report published last week also showed that more than 83% of survey respondents expect prices to be higher a year from now.
To cushion the impact of rising oil prices, Japan eliminated taxes on gasoline and introduced subsidies.
Criterion Nikkei 225 The stock index fell 0.5% on Tuesday.
