Middle East conflict pushes up inflation in Japan, Bank of Japan Governor: determined to steadily raise interest rates

Lianhe Zaobao, March 30, news report (Editor: Liu Rui) This Monday, Japan’s central bank governor Kazuo Ueda said publicly in the Japanese parliament that the Bank of Japan will closely monitor the yen’s price action, as it affects the economy and inflation.

He hinted that due to intensified Middle East conflict increasing Japan’s domestic inflation pressure, and the yen’s continued weakness leading to higher import costs, the BOJ may consider raising interest rates in the coming months.

At the time these remarks were released, the yen-to-US dollar exchange rate was relatively weak, and the quoted rate had already fallen below 1 US dollar to 160 yen, hitting the lowest level since July 2024.

In the parliament, Kazuo Ueda said: “We are not directly controlling changes in foreign exchange rates through monetary policy. But fluctuations in the money market are clearly one of the factors that have a significant impact on the development of the economy and prices.”

Kazuo Ueda said that the impact of today’s yen volatility on inflation is greater than in the past, because Japanese companies are more actively raising prices and wages.

When a member of parliament asked whether the BOJ could raise interest rates to deal with yen depreciation, he replied: “We will adjust policy appropriately based on the likelihood and risks of how exchange rate changes affect the prospects for achieving economic growth and inflation forecasts.”

At the BOJ’s March interest rate decision meeting, it kept the short-term interest rate unchanged at 0.75%, but continued to maintain a tightening bias in monetary policy and warned that a surge in oil prices driven by the Middle East conflict could further intensify inflation pressure.

As the Middle East conflict continues to escalate, the market has become increasingly concerned that the Bank of Japan may have fallen behind the situation in dealing with the risk of high inflation. Driven by this sentiment, the yields on Japanese government bonds rose noticeably last week.

Kazuo Ueda said that if the BOJ raises the short-term policy interest rate at an “appropriate pace,” long-term JGB yields will remain stable in their movements.

“If our short-term policy interest rate is not adjusted appropriately, leading to inflation that is too high, then long-term yields could end up being too high,” he said, indicating that the BOJ has decided to steadily raise its policy interest rate.

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责任编辑：郭建