Himino: Middle East situation could affect Japan’s economy, prices

Himino: Middle East situation could affect Japan’s economy, prices

Himino: Middle East Situation Could Affect Japan’s Economy, Prices
March 2, 2026

The Bank of Japan (BOJ) deputy governor, Ryozo Himino, acknowledged that escalating tensions in the Middle East could impact Japan’s economic outlook and inflationary pressures, according to recent statements. While the central bank remains committed to gradually raising interest rates, the ongoing conflict between Iran and Israel has introduced uncertainty, complicating monetary policy decisions.

Oil prices surged 7% on March 1, 2026, reaching multi-month highs as hostilities disrupted shipments from the Middle East, Japan’s primary crude oil supplier. The country imports 90% of its oil from the region, leaving it vulnerable to supply shocks. Japanese shipping firms suspended operations in the Strait of Hormuz following U.S. military strikes on Iran, exacerbating concerns over energy security.

Analysts warn that prolonged conflict could trigger stagflationary risks for Japan. A 10% rise in oil prices could reduce real GDP by approximately 0.1%, according to Morgan Stanley MUFG Securities, while Nomura Research Institute estimates inflation could rise by 0.31% due to prolonged disruptions. Prime Minister Sanae Takaichi has directed her cabinet to assess the economic fallout, emphasizing the need for contingency planning.

Himino noted that while past rate hikes have had limited economic impact so far, the BOJ aims to shift toward a “more neutral” policy stance through moderate increases. However, the central bank may adopt a cautious approach if inflation remains below its 2% target and growth weakens. Underlying inflation, though rising, is expected to decelerate in the longer term, according to Takeshi Y. Yamaguchi of Morgan Stanley MUFG Securities.

The conflict’s duration and its effect on oil shipments will determine Japan’s economic trajectory. With real wages projected to turn positive and food inflation easing, growth could rebound. However, short-term risks from higher energy costs and disrupted trade remain significant. The BOJ’s next policy decision, anticipated in April, will likely reflect these evolving dynamics.