A top official from Japan’s central bank announced Friday that the institution plans to continue increasing interest rates while carefully monitoring the economic impact of ongoing Middle East conflicts.
Speaking before parliament, Koji Nakamura, who serves as the Bank of Japan’s executive director for monetary policy, explained that while elevated fuel prices stemming from regional conflicts could damage Japan’s economy through worsened trade conditions, they might simultaneously drive up core inflation by raising long-term price expectations.
Nakamura noted that inflationary pressure from increased fuel costs could be more significant than in previous situations, as businesses are showing greater willingness to implement price and wage increases.
“If our economic and price projections were to materialise, we will likely continue to raise interest rates,” Nakamura stated, emphasizing that the scale and timing of future adjustments would be determined by prevailing economic, price, and financial circumstances.
“We will reach an appropriate decision at each policy meeting by updating our economic, price projections and our views on risks using data available at the time,” he continued.
Japan’s central bank concluded a decade of extensive economic stimulus measures in 2024 and has implemented multiple rate increases since then, including a December adjustment that brought the short-term policy rate to 0.75% – its highest level in three decades.
Financial markets are currently indicating approximately a 70% probability of another rate increase this month, as climbing fuel costs and elevated import prices from a weakened yen continue to add inflationary pressure to Japan’s economy.
