The Bank of Japan has warned that rising oil prices and supply disruptions linked to the Middle East conflict could negatively impact the country’s economy, urging caution over potential interest rate hikes.
In a quarterly report based on assessments from its regional branches, the central bank said businesses across Japan are already feeling pressure from higher input costs and delays in raw material supplies caused by the ongoing Iran war.
“As uncertainty heightens, some firms are concerned that rising energy prices could hurt corporate profits and consumer spending,” the report noted.
The findings highlight a more cautious tone compared to recent policy discussions within the BOJ, where board members have focused on inflation risks. The divergence underscores uncertainty over whether the bank will proceed with a rate hike at its upcoming policy meeting later this month.
Companies in several regions have begun adjusting operations. In Osaka, a chemical manufacturer has cut production due to concerns over raw material availability, while a transport firm reported rising costs after rerouting shipments that previously passed through Dubai.
Kazuhiro Masaki said the impact remains limited for now but warned that prolonged conflict could have broader economic consequences. “It’s not just about prices, but also the availability of goods,” he said, adding that many firms are increasingly uneasy about the outlook.
Despite these concerns, the BOJ maintained its overall positive assessment of all nine regional economies, supported by strong consumption, tourism, and steady wage growth. However, some companies indicated that future pay increases could depend on how the Middle East situation evolves.
The conflict has also disrupted global energy markets, particularly after the effective closure of the Strait of Hormuz—a key route for about a fifth of the world’s oil and gas shipments—driving up crude prices and strengthening the U.S. dollar against the yen.
While rising import costs and a weaker yen are fueling inflation, they also pose risks to Japan’s import-dependent economy and corporate profitability. This could undermine the cycle of wage growth and price increases that the BOJ sees as essential for further tightening.
With markets currently pricing in a strong احتمال (likelihood) of a rate hike, the BOJ is expected to closely monitor developments before its next policy meeting on April 27–28.