Bank of Japan Holds Interest Rates at 0.75% While Warning of Oil-Driven Inflation Risks

The Bank of Japan (BOJ) left its benchmark interest rate unchanged at 0.75% on Thursday, maintaining a cautious monetary policy stance while warning that rising oil prices linked to escalating Middle East tensions could place renewed upward pressure on inflation.

The decision came at the conclusion of a two-day policy meeting, during which policymakers weighed the resilience of Japan’s domestic economy against growing global uncertainty triggered by energy market volatility.

In its official statement, the central bank highlighted heightened market instability following the escalation of geopolitical tensions in the Middle East, noting that surging crude oil prices are likely to push consumer inflation higher.

“Particular attention should be paid to the impact of rising crude oil prices on core inflation expectations,” the BOJ said, underscoring concerns that energy costs could alter the trajectory of price stability.

Japan’s heavy reliance on Middle Eastern energy imports leaves the economy especially vulnerable to fuel price shocks, raising risks for corporate profitability and household purchasing power.

Despite the decision to hold rates steady, divisions surfaced within the Bank’s policy board. Two hawkish members challenged the central bank’s inflation timeline, arguing that Japan could achieve sustained inflation at the 2% target sooner than previously projected.

Board member Hajime Takata reiterated an earlier proposal to raise interest rates to 1.0%, contending that inflation conditions already justify tighter policy. Meanwhile, Naoki Tamura questioned the BOJ’s forecast that stable 2% inflation would be reached by October, suggesting the milestone could arrive as early as April.

Speaking at a press conference following the meeting, BOJ Governor Kazuo Ueda said Japan’s economy had shown solid momentum prior to the recent geopolitical escalation, supported by steady household spending and corporate activity.

Government stimulus measures are also expected to help sustain economic growth, he added, though policymakers will closely monitor how higher energy prices affect trade conditions and overall economic performance.

The BOJ raised interest rates to 0.75% in December, the highest level in three decades, signaling a historic shift away from ultra-loose monetary policy. Officials have indicated readiness to continue tightening if wage growth and inflation remain aligned with the bank’s long-term objectives.

Recent economic data suggests the transition toward a wage-price cycle may be gaining traction. Exports expanded for a sixth consecutive month in February, while major Japanese firms approved significant wage increases during annual labor negotiations.

These developments support the central bank’s view that Japan may finally be entering a sustainable phase of rising wages and prices after decades of deflationary pressure.

Despite uncertainty surrounding the Iranian conflict and global energy markets, financial markets currently assign roughly a 60% probability to another rate increase as early as April.