The Bank of Japan (BOJ) decided to keep its interest rate at 0.75% at its April 28 meeting, but sharply raised its inflation forecasts due to risks related to the Middle East. Growing internal divisions suggest the possibility of a new monetary tightening in June 2026.
The Bank of Japan (BOJ) decided to keep its policy rate unchanged at around 0.75% at its April 28 meeting. However, the central bank has significantly raised its inflation forecasts amid geopolitical instability in the Middle East, which is exerting pressure on energy prices and directly impacting the import-dependent Japanese economy.
The decision by the Bank of Japan to hold its interest rates unchanged was in line with market expectations, marking the third consecutive time that the central bank has not changed its interest rates since early 2016. However, the voting results revealed the biggest disagreement within the Monetary Policy Committee since the Bank of Japan began applying negative interest rates in 2016.
More precisely, six members were in favor of keeping rates unchanged, while three others wished to raise them immediately to 1.0%. This change indicates that the balance within the Bank of Japan is gradually leaning toward a more restrictive monetary policy in order to curb inflation and to normalize monetary relations after decades of low rates.
In its outlook report published the same day, the Bank of Japan significantly lowered its main economic indicators for the fiscal year ending March 2027. This revision reflects the negative impact of global supply shocks.
It warned that higher crude oil prices, driven by geopolitical tensions in the Middle East, could erode corporate profits. Currently, more than 90% of Japan’s crude oil imports come from the region, making the economy particularly vulnerable to Gulf fluctuations. Some Japanese material manufacturers have already begun reducing production due to excessively high costs.
