Tokyo [Japan], March 21: The Bank of Japan on Thursday kept its benchmark interest rate unchanged, as developments in the Middle East complicate the future path of its monetary policy.
With the Iran war threatening to drive up inflation and dampen economic growth, the central bank is bracing for the upside and downside risks to the price and economic outlooks.
BOJ Governor Kazuo Ueda said at a press conference after its two-day policy meeting through Thursday that he "needs more time" to understand the impact the war will have on the economy.
"We have decided to keep the policy unchanged as risks associated with rising crude oil prices have newly emerged," Ueda said. "We will make an appropriate policy decision next month after examining the new risk scenario and outlook when more data become available." The bank has been seeking to normalize its monetary policy since it ended unconventional monetary easing two years ago to stably achieve its 2 percent inflation target.
If the central bank continues raising its policy interest rate to tame possible higher inflation at a time when an energy price surge threatens to dent demand, the move could add pressure on growth, while leaving the policy intact could fuel inflation coupled with the yen's recent weakening. A weaker yen increases import costs.
Still, Ueda said more policymakers are aware of the upside risk to inflation.
The U.S. Federal Reserve, which also decided to keep its rate steady at its meeting through Wednesday, also warned of higher inflation with Fed chief Jerome Powell emphasizing uncertainty over the U.S. economic outlook from the Iran war.
At the policy meeting, the BOJ left the key rate at around 0.75 percent for the second consecutive meeting.
The Japanese central bank lifted its policy rate to a 30-year high of around 0.75 percent from 0.5 percent at its December meeting.
The latest decision to stand pat on the rate was delivered in an eight-to-one vote, with hawkish policymaker Hajime Takata proposing a rate hike to around 1.0 percent.
The nationwide core consumer price index, excluding volatile fresh food, in Japan is expected to come under "upward pressure," affected by the rise in crude oil prices, the bank said in a post-meeting statement.
The yen's recent depreciation against the U.S. dollar is also threatening to raise import costs for resource-poor Japan.
The dollar came within striking distance of the 160 yen mark overnight, a level unseen since 2024 prior to the BOJ's meeting, prompting Finance Minister Satsuki Katayama to say Japanese authorities are on "full guard" and ready to consider all possible options.
In the wake of the U.S.-Israeli launch of attacks on Iran, the dollar has drawn buying, as a safe-haven asset in times of crisis. Tokyo shares have also faced steep declines with uncertainties heightening over the effects of the Middle East crisis on inflation and the broader economy.
The war with Iran has effectively closed the Strait of Hormuz, through which many oil tankers pass, including those bound for Japan.
Source: Qatar Tribune
