Bank of Japan holds rates as oil shock raises inflation risks

Thursday 19 March 2026 - 07:20

By: Dakir Madiha

Bank of Japan holds rates as oil shock raises inflation risks

The Bank of Japan kept its interest rates unchanged on Thursday, warning that rising oil prices linked to the Middle East conflict could push up underlying inflation and complicate policy decisions.

The central bank maintained its short-term policy rate at 0.75 percent following a two-day meeting, in line with market expectations. The decision passed by an 8 to 1 vote, with board member Hajime Takata again calling for a rate increase to 1 percent. Two other hawkish members also questioned the bank’s timeline for achieving its 2 percent inflation target, suggesting it could be reached sooner than projected.

In its statement, the BOJ pointed to risks stemming from the Middle East conflict, signaling caution about tightening monetary policy amid volatile energy prices. Governor Kazuo Ueda is expected to provide further guidance during a press conference later in the day.

The surge in oil prices has added complexity for central banks globally. Brent crude has climbed more than 40 percent since late February, when the United States and Israel launched strikes on Iran. Prices rose above $112 per barrel after attacks hit Iran’s South Pars gas field and damaged energy infrastructure at Ras Laffan in Qatar. The disruption of shipping through the Strait of Hormuz, a key route for about 20 percent of global oil supply, has driven energy costs sharply higher.

Other central banks have adopted a similar stance. The US Federal Reserve and the Bank of Canada also held rates steady earlier in the week while warning that higher oil prices could reignite inflation. Japan remains particularly exposed due to its reliance on Middle Eastern energy imports, with analysts noting that higher fuel costs both slow economic growth and increase consumer prices.

In China, the People’s Bank of China is expected to keep its loan prime rates unchanged, with forecasts pointing to a one-year rate of 3.0 percent and a five-year rate of 3.5 percent for an eleventh consecutive month. Governor Pan Gongsheng has indicated that monetary tools will be used flexibly to support growth, while acknowledging rising risk aversion in currency markets linked to the conflict.

Market expectations currently place the probability of a BOJ rate hike in April at around 60 percent, though analysts say the outlook depends heavily on how the geopolitical situation evolves.