Minutes from the Bank of Japan’s March policy meeting, released Thursday, showed board members engaged in pointed debate over how quickly to raise interest rates as a Middle East energy shock driven by the Iran conflict threatens to reignite inflation in Japan.
Hawks Push for Faster Action
At its March 18–19 meeting, the BOJ’s policy board voted 8-1 to keep the uncollateralized overnight call rate at 0.75%, with board member Takata Hajime the sole dissenter arguing for an immediate hike to 1.0%. But the minutes revealed a broader hawkish undercurrent beneath the surface consensus. One member said the BOJ should raise rates “without long intervals,” while another said the central bank would need to hike “without hesitation” if the economy showed no deterioration from the conflict.
Several members warned that Japan’s more active wage and price-setting environment meant second-round inflation effects were more likely to emerge than during the 2022 energy shock following Russia’s invasion of Ukraine, raising the risk the BOJ could fall behind the curve. Many members drew lessons from the delayed policy responses in Europe and the United States after 2022, where central banks were later forced into aggressive tightening cycles.
April Meeting Underscores Growing Pressure
The hawkish sentiment expressed in March only intensified at the BOJ’s subsequent April meeting. On April 28, the board again held rates at 0.75%, but this time three members dissented in favor of a hike to 1.0% — the largest split under Governor Kazuo Ueda’s tenure. According to Reuters, the 6-3 vote pointed to a rising likelihood of a June rate increase.
The Japan Times reported that while skipping a rate increase appeared dovish on the surface, the growing number of dissenters signals the possibility of a hawkish path ahead.
Inflation Outlook Clouded by Conflict
The ongoing U.S.-Israeli hostilities involving Iran have complicated the BOJ’s gradual normalization plans. At the time of the March meeting, headline CPI had fallen back to around 2%, aided by government energy subsidies, but members expected upward pressure to return as crude oil costs fed through. The yen’s persistent weakness near ¥155 per dollar has amplified the impact of higher imported energy costs on households and businesses.
Markets now estimate the BOJ’s neutral rate at approximately 1.5%, and economists are pricing in a strong chance of a hike at the June meeting.
