Bank of Japan Governor Kazuo Ueda struck a cautious tone, warning that rising crude oil prices and instability in global financial markets could pose fresh risks to Japan’s outlook. Speaking via remarks delivered by Deputy Governor Ryozo Himino, Ueda emphasized the need for “vigilance” as Middle East tensions intensify, noting that energy-driven shocks could disrupt both growth and inflation dynamics.
While Ueda maintained that Japan’s gradual economic recovery and solid wage gains are keeping underlying inflation on track toward the 2% target, he highlighted growing uncertainty around the oil outlook. A prolonged conflict could weigh on factory output through supply chain disruptions, potentially widening the output gap and dampening inflation. At the same time, he acknowledged that higher energy costs could lift medium- to long-term inflation expectations, creating a two-sided risk for policymakers.
“If the output gap worsens, that could weigh on underlying inflation. On the other hand, if rising crude oil prices heighten the public’s medium- and long-term inflation expectations, that could push up underlying inflation,” he said.
Importantly, Ueda offered no clear signal on the policy path ahead of the April 27–28 meeting. Markets had been looking for clues on a possible rate hike. But for now, BoJ policymakers appear focused on assessing how the evolving geopolitical situation feeds into economic activity, price trends, and financial conditions before making any decisive move.
