BOJ Skips Rate Hike amid Middle East Tensions

Tokyo, April 28 (Jiji Press)–The Bank of Japan decided Tuesday to keep its monetary policy unchanged, against the background of the Iran conflict. At a two-day meeting that ended the same day, the BOJ’s Policy Board voted six to three to maintain the policy of guiding the unsecured overnight call rate, Japan’s benchmark short-term interbank rate, to around 0.75 pct. The policy rate was kept unchanged for three meetings in a row after being raised from around 0.5 pct last December. The three dissenting Policy Board members–Junko Nakagawa, Hajime Takata and Naoki Tamura–proposed raising the policy rate to around 1.0 pct, citing increasing inflation risks on the back of soaring crude oil prices. Their proposal, however, was shot down by a majority vote. In the previous policy-setting meeting held March 18-19, Takata was the only member pushing for an interest rate hike. The April meeting was the first policy-setting meeting to have at least three dissenters to the BOJ leadership’s policy proposal since one held in January 2016, when the central bank decided to introduce a negative interest rate policy. At the time, four members voted against the negative rate regime. At a press conference held after the latest meeting, BOJ Governor Kazuo Ueda voiced his concerns over inflationary risks, in light of the high crude oil prices amid the Middle East tensions. He, however, said that the current situation is “not so urgent that we need to raise interest rates immediately.” “We’ll make appropriate policy decisions at the next and later policy-setting meetings to make sure that we don’t fall behind the curve,” Ueda said. On the differing views presented at the latest meeting, Ueda said, “This reflected just how tough the decision was to make.” The BOJ also adopted its latest quarterly Outlook for Economic Activity and Prices report, raising its growth forecast for Japan’s core consumer price index in fiscal 2026, which started this month, to 2.8 pct from 1.9 pct. The growth outlook for the core CPI, which excludes often volatile fresh food prices, was revised up to 2.3 pct from 2.0 pct for fiscal 2027. The newly disclosed core CPI growth projection for fiscal 2028 stood at 2.0 pct. The country’s underlying inflation, excluding temporary factors, is expected to come to “a level that is generally consistent with the (BOJ’s 2 pct) price stability target between the second half of fiscal 2026 and fiscal 2027,” the report said. Also in the report, the BOJ cut its growth projection for Japan’s real gross domestic product for fiscal 2026 to 0.5 pct from 1.0 pct. The GDP growth outlook was revised down to 0.7 pct from 0.8 pct for fiscal 2027. For fiscal 2028, GDP growth is estimated at 0.8 pct. The BOJ said in the report, “Japan’s economic growth is likely to decelerate in fiscal 2026 since the rise in crude oil prices reflecting the impact of the situation in the Middle East is expected to push down corporate profits and households’ real income.” The central bank added that it is necessary to “pay particular attention to the impact of the future course of the situation in the Middle East on financial and foreign exchange markets and on Japan’s economic activity and prices.” With companies becoming more open to raising wages and prices of their products and services, Ueda said, “The rising crude oil prices now have a bigger impact on goods and services prices than ever before.” On future plans over the envisioned additional interest rate hikes, Ueda said, “We’ll consider the matter while assessing the probability of our baseline economic and price scenario coming true as well as risk factors and also while carefully monitoring the impact the Middle East situation on the economy and prices.” “I have no preconceptions over how many months our assessment will take,” he added. END [Copyright The Jiji Press, Ltd.]