BOJ Likely to Keep Interest Rates Unchanged

Tokyo, March 15 (Jiji Press)–The Bank of Japan is expected to keep interest rates unchanged at its next policymaking meeting from Wednesday while keeping a close watch on the impacts of escalating Middle East tensions on economic activities and prices. The two-day Policy Board meeting through Thursday comes at a time when uncertainty over the Japanese economy is growing amid surging crude oil prices reflecting the conflict between U.S.-Israeli forces and Iran. The BOJ will likely decide to continue guiding the unsecured overnight call rate, Japan’s benchmark short-term interbank lending rate, to around 0.75 pct, analysts said. Further spikes in crude oil prices would deal a serious blow to the economy of Japan, which heavily relies on imports for a large part of energy it consumes. On the foreign exchange market, the yen is weakening due to dollar buying spurred by the Middle East tensions. Rises in crude oil prices and falls in the yen would increase inflationary pressure in Japan. A senior BOJ official said that higher crude oil prices could either push down the country’s underlying inflation due to economic stagnation or drive it up as companies move to pass on higher costs to prices. The central bank maintains its stance of raising interest rates as it seeks to normalize monetary policy after years of ultraeasy policy. The bank raised its policy rate to the current level last December. However, the BOJ may face a policy dilemma due to the possibility of the country falling into stagflation, in which inflation and economic slowdown occur simultaneously. END [Copyright The Jiji Press, Ltd.]