Bank of Japan keeps rates steady as expected, warns Iran war may push up inflation

The Bank of Japan kept interest rates steady at 0.75% on Thursday as expected but noted that inflation risks are now tilted upward due to the Iran war.

In its statement, the BOJ said that the decision was divided and eight out of nine members voted in favor of postponement.

The only dissident was Hajime Takata, who saw “developments abroad” as a risk to prices in Japan and suggested raising the interest rate to 1%.

In its statement, the BOJ said that core inflation is expected to temporarily fall below 2 percent in the near term due to the slowdown in rice price increases, but that the conflict in the Middle East will create “upward pressure due to the recent rise in crude oil prices.”

“Attention should also be paid to the impact of the increase in crude oil prices on the underlying outlook for CPI inflation,” the central bank said. he said.

The decision comes as Tokyo grapples with the effects of the Iran conflict, which has increased energy prices. The country obtains approximately 95 percent of its energy imports from the Middle East.

Prime Minister Sanae Takaichi as Japan releases crude stocks He promised to keep Retail gasoline prices are “under control” at around 170 yen per liter nationwide.

Analysts Dutch bank ING “It will be important to closely examine how the BOJ evaluates the economic fallout from the Middle East conflict and the results of the spring wage talks. These factors will influence whether the rate hike occurs in April or June,” he wrote in a note last Friday.

The central bank is closely monitoring Japan’s spring wage negotiations, also known as “shunto” talks, involving labor federations and the country’s largest firms. After years of stagnant wages, these talks are vital to sustainably achieve the BOJ’s 2% inflation target.

Inflation in Japan currently stands at 1.5% as of January; Headline inflation fell below the 2% target for the first time in 45 consecutive months.

On Wednesday, Japanese media reported: many big companies had fully accepted their union’s demands for a pay raise; This would be the third year in a row that salary increases exceeded 5%.

Nikkei reported It was the first such series since 1989-1991, and preliminary results of the shunto talks will be published by the Japanese Trade Union Confederation, or Rengo, on March 23.

This increase will be a welcome relief for Japanese workers who have seen their real wages fall month by month in 2025. However, real wages increased by 1.4% in January compared to the previous year.

The BOJ’s decision also comes in line with reports that Prime Minister Sanae Takaichi opposes interest rate hikes.

Following the landslide Lower House victory in February, the Japanese newspaper Mainichi Shimbun reported: In late February, Takaichi had expressed his “reluctance” to raise interest rates further to BOJ governor Kazuo Ueda.

This is breaking news, please check back for updates.