Japan’s central bank kept its benchmark rate unchanged at 0.75% on Tuesday, as concern grew that the war in Iran could raise energy costs further and feed through to the broader economic outlook. The decision came from the Bank of Japan after it said the economy was still growing moderately, but that it was expected to slow.
In its statement, the central bank said, “There are various risks to the outlook,” adding that “for the time being it is necessary to pay particular attention to the impact of the future course of the situation in the Middle East.” The bank’s wording reflected a focus on how developments in the Middle East could influence prices and the path for Japan’s economy.
The outcome was in line with market expectations, but internal disagreement was visible: the Bank of Japan’s monetary policy board voted 6-3 to keep the rate steady rather than shifting toward a gradual increase. The framework facing the decision also includes ongoing pressure to gradually raise rates after years when the benchmark interest rate has been kept near or below zero to counter deflationary pressures.
AP reported that Tokyo’s benchmark Nikkei 225 fell more than 1% after the Bank of Japan’s decision, underscoring the market sensitivity to the timing and direction of any future rate changes.
Beyond Japan, the central bank’s rate decision landed against a backdrop of other major monetary policy meetings this week. The report said the U.S. Federal Reserve and central banks in Europe were also meeting on interest rates, as markets weigh the interplay between growth, inflation, and geopolitical risk.
A key driver behind the Bank of Japan’s attention to Middle East risks was the situation around the Strait of Hormuz. The report described the strait as effectively closed due to the war, with few ships able to cross, through which about 20% of all traded oil and natural gas passes—conditions that have contributed to sharply higher oil and gasoline prices.
The report said those disruptions are also affecting energy availability in other ways, including starting to make jet fuel and cooking gas scarce in some parts of the world. It said Japan depends heavily on oil from the Middle East, leaving the country more exposed to changes in global energy flows and prices.
The decision keeps Japan’s benchmark rate unchanged as central banks elsewhere consider their own policy direction amid those same energy and inflation pressures, with investors watching whether the Middle East situation will worsen or ease and how that will feed into the outlook the Bank of Japan is monitoring.