Iran war pushes Bank of Japan toward policy tightening despite economic risks.
March 12, 2026. Fresh supply shocks from the Middle East conflict are accelerating the Bank of Japan's hawkish agenda, intensifying inflation risks. Four sources indicate another rate hike could come as early as April.
BOJ's focus is shifting from growth support to inflation control — a departure from its traditional priority. Market pricing reflects approximately 60% probability of an April move.
Underlying inflation already approaches 2%. Firms expect 2.4% inflation in five years. Households forecast 9.8% over the same period. Labor shortages are driving the largest wage increases in 34 years.
Governor Ueda warns the conflict could harm Japan's economy through worsening terms of trade, while also pushing up core inflation.
For investors: inflation pressure now trumps growth concerns as BOJ's primary driver. The April meeting will be critical.
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