Five sources with knowledge of the Bank of Japan's internal thinking say the central bank is likely to keep policy rates unchanged at its next meeting, citing heightened uncertainty stemming from the prolonged Middle East conflict and its repercussions for Japan's economic and price outlook. The sources, who spoke on condition of anonymity because they were not authorised to speak publicly, characterized the decision as leaning toward standing pat rather than moving to raise borrowing costs.
One source described the current environment as so uncertain that remaining on hold this month would be feasible for the BOJ. Another source conveyed a similar view. A third source pointed to market pricing as an influencing factor, noting that markets have largely ruled out the probability of a rate increase at the BOJ's April 27-28 meeting.
Officials reportedly see the final decision as a close call that could shift if developments occur in parallel diplomatic negotiations between the United States and Iran. With those talks potentially affecting the near-term outlook, the central bank is said to prefer extra time to gauge the fallout from the conflict before committing to a change in policy.
Even if the BOJ refrains from tightening policy next week, the sources said it would likely indicate a willingness to raise borrowing costs as soon as June should inflationary forces continue to mount. They pointed to surging oil prices as a key factor adding to price pressures, complicating the bank's plan to normalize still-low borrowing costs.
The sources emphasized that higher oil prices not only add to inflationary momentum but also pose a risk to an economy that depends heavily on fuel imports from the region. That combination of higher import costs and uncertainty around the geopolitical situation has made the timing of any rate move more difficult for policy makers.
Market participants have been cutting their bets on a rate rise at the April meeting, and the accounts from the five sources represent the first confirmation of that inclination from within the central bank. While the BOJ appears inclined to delay action next week, the option to tighten policy within weeks remains on the table if price pressures intensify.
Key context:
- The BOJ is reportedly leaning toward no rate increase at the April 27-28 meeting.
- Officials may signal readiness to raise rates in June if inflation continues to build.
- Surging oil prices and ongoing Middle East tensions are cited as complicating factors for Japan's economy and inflation outlook.