Bank of Japan’s emergency adjustment sounds a growth alarm as Middle East conflict escalation is swallowing up the last window for an April rate hike

汇通财经2026/04/13 11:06

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Bank of Japan Governor Kazuo Ueda issued a clear warning on Monday through a speech by the Deputy Governor, stating that the ongoing uncertainty in the Middle East is causing continuous turmoil in global financial markets and that the sharp surge in crude oil prices may have a substantial impact on factory output.
Ueda emphasized the need for heightened vigilance regarding the spillover effects of the Iran war, a stark reversal from the March policy statement, which only mentioned further rate hikes as long as the economy and prices improved. This suggests that concerns over growth risks among decision-makers are rising rapidly.
Ueda pointed out that although the gradual economic recovery and solid wage increases from this year’s spring wage negotiations are still driving underlying inflation toward the 2% target, the sharp rise in crude oil prices will disrupt supply chains and pull down Japan’s industrial output. A worsening output gap will, in turn, suppress underlying inflation.
Japan's benchmark government bond yield soared to a 29-year high on Monday, partly due to investors' concerns that surging energy costs would intensify inflationary pressure. However, Ueda also warned that if high oil prices drive up the public’s medium- and long-term inflation expectations, this could create reverse pressure.
Institutional strategists interpret Ueda’s focus on downside economic risks as a sign that the Bank of Japan’s confidence in achieving its growth and price forecasts is wavering. Although delaying rate hikes could lead to yen depreciation and imported inflation, acting rashly amid the fog of war carries even greater risks.
The probability of an April rate hike has narrowed significantly as the conflict drags on. The Bank of Japan is caught in a dilemma: if it sticks to the rate hike path it risks harming the already fragile production sector, while standing pat means enduring the ongoing blow of a weaker yen on import costs, leaving policymakers with little room to maneuver.

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Bank of Japan’s emergency adjustment sounds a growth alarm as Middle East conflict escalation is swallowing up the last window for an April rate hike

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