TOKYO, April 28, 2026 (AFP) : Japan’s central bank on Tuesday hiked its inflation forecasts and halved its growth projections after the Iran war sent oil prices soaring.
The Bank of Japan (BoJ) said it expected inflation this fiscal year to hit 2.8 percent, up from its previous projection of 1.9 percent, while it also kept its main policy rate at 0.75 percent.
“Comparing the projections… with those presented in the previous Outlook Report, the projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2026 is significantly higher, and that for fiscal 2027 is also somewhat higher, reflecting the effects of the rise in crude oil prices,” the BoJ said.
It said “the rise in crude oil prices is expected to push up prices, mainly of energy and goods, with moves to pass on wage increases to selling prices continuing”.
The BoJ also revised down its fiscal 2026 growth forecast to 0.5 percent from 1.0 percent, and for fiscal 2027 it now expects an expansion of 0.7 percent, compared with the previous estimate of 0.8 percent.
Oil prices have soared since the United States and Israel attacked Iran on February 28 and the Islamic Republic effectively closed off Strait of Hormuz — a vital waterway for crude.
That has sent the cost of fuel and myriad related products higher around the world, squeezing consumers, putting a brake on economic activity and causing headaches for central banks.
Cutting interest rates could help spur growth but risks sending prices even higher, hurting consumers and putting pressure on governments with already shaky public finances.
The Federal Reserve and the European Central Bank are also expected to keep their main borrowing rates unchanged at meetings this week.
In the case of Japan, the world’s fourth-largest economy, the war has also put pressure on the yen, further swelling the resource-poor Asian nation’s already colossal import bill.
The BoJ has “no good options” said Stefan Angrick, economist at Moody’s Analytics before the BoJ’s announcement.
“The Middle East conflict presents a stagflationary shock, raising inflation and weakening real GDP growth,” Angrick said in a note, referring to stagnant economic growth combined with rising prices.
“In that setting, tightening might support the yen and limit inflation, but it would also hurt loan-dependent small and midsize firms and young households with mortgages. Easing, on the other hand, could see the yen slip, adding to imported inflation from the conflict,” Angrick added.
Prime Minister Sanae Takaichi, who remains popular since taking office last year, has made fighting inflation a major priority, with rising prices having contributed to the downfall of her two predecessors.
