Bank of Japan Expected to Hold Rates at 0.75% Before June Hike Amid Middle East War Uncertainty

A recent Reuters poll of 64 economists confirmed that the Bank of Japan will hold its benchmark interest rate steady at 0.75% during its March 19 meeting, with a likely increase to 1.00% by the end of June. These expectations remain largely consistent with forecasts made before the outbreak of the U.S.-Israeli conflict with Iran.

The ongoing Middle East war has intensified global inflation concerns, primarily through surging oil prices. Japan, which depends heavily on Middle Eastern oil imports, faces mounting pressure from rising energy costs compounded by a weakening yen — down roughly 1% against the dollar since the war began and over 6% in the past six months. These factors could push the BOJ toward accelerating its rate hike timeline to curb import-driven inflation.

Despite this, many analysts believe the situation warrants a cautious approach. Economists at major Japanese financial institutions suggest that oil-driven price increases are likely temporary and may not significantly alter underlying inflation trends in the near term. Of 44 economists who identified a specific month for the next hike, June led at 32%, followed by July at 30% and April at 27%.

Looking further ahead, poll medians suggest the BOJ will move gradually, reaching 1.25% by early 2027 and 1.50% by early 2028. BOJ Governor Kazuo Ueda has reaffirmed the central bank's commitment to continued rate increases if economic conditions align with projections, while acknowledging risks posed by global uncertainty.

The recent addition of two stimulus-leaning academics to the BOJ's policy board is not expected to derail the rate hike trajectory, according to 58% of surveyed economists. Meanwhile, over half of respondents assessed the risk of the BOJ falling behind on inflation control as neither particularly high nor low, reflecting a broadly stable but watchful policy outlook.