Bank of Japan Keeps Rates Unchanged as Expected, Warns on Oil Prices and Inflation

Investing.com - The Bank of Japan kept interest rates unchanged on Thursday as widely expected, and expressed caution about the inflation impact from the US-Israel conflict with Iran, which has led to rising energy prices.

The Bank of Japan maintained the overnight lending rate at 0.75% with near-unanimous agreement among its nine board members. BoJ board member Takada So was the sole dissenter, calling for a 25 basis point hike amid upside risks to inflation.

Concerns about medium- to long-term inflation have increased, with rising oil prices posing an upward risk to the country’s cost of living.

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“The outlook faces risks including the future course of the Middle East situation and developments in crude oil prices,” the Bank of Japan said in a statement.

The central bank reaffirmed its outlook that consumer price index inflation will cool in the near term, due to weakening effects of high food prices and government measures to address them.

However, inflation is expected to rebound later, with core consumer price index inflation projected to reach Japan’s 2% annual target later in 2026, the bank said.

Thursday’s rate hold was in line with market expectations, and the Bank of Japan is seen as pausing future rate hikes until it gains a clearer understanding of the Japanese economy. Ongoing spring wage negotiations are crucial, as any substantial wage increases could provide the BoJ with more impetus to raise rates.

The central bank has raised rates by a total of 85 basis points since early 2024, ending over a decade of ultra-loose policy.

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