Bank of Japan Holds Rate at 0.75% as Iran War Drives Oil Prices and Inflation Fears

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The Bank of Japan held its benchmark interest rate at 0.75% for the second consecutive policy meeting in March 2026.
The Iran war has closed the Strait of Hormuz, threatening Japan’s energy imports and pushing crude oil prices sharply higher.
Finance Minister Satsuki Katayama warned Japan is on full guard as the yen nears the critical 160-per-dollar threshold.
The BOJ faces stagflation risks as higher oil costs drive inflation while rate hikes could slow Japan’s broader economic growth.

The Bank of Japan kept its benchmark interest rate unchanged at 0.75 percent on Thursday. The Policy Board voted eight-to-one to maintain the rate for a second consecutive meeting.

Officials warned that rising crude oil prices, driven by the Iran war, could accelerate inflation further. The central bank also acknowledged growing “volatility” in global financial markets and stressed the importance of monitoring future developments closely.

BOJ Flags Upward Pressure on Core Consumer Prices

The Bank of Japan’s post-meeting statement pointed directly to rising crude oil prices as a key concern. The nationwide core consumer price index, excluding volatile fresh food, is expected to come under “upward pressure,” the bank stated.

One board member, Hajime Takata, voted to raise the rate to 1.0 percent, reflecting hawkish sentiment on the board.

The Iran war has effectively closed the Strait of Hormuz, a critical route for global oil shipments. Many tankers passing through this strait carry oil and liquefied natural gas bound for Japan.

Damage to liquefied natural gas export facilities has further compounded the supply strain. The country relies heavily on energy imports, making it especially vulnerable to these disruptions.

As crude oil prices surge, the cost impact is expected to spread across many sectors. Gasoline, plastics, and several other commodities are among the products most likely to see price increases. Electricity and gas bills could also rise sharply if liquefied natural gas prices continue to climb.

The BOJ had raised the benchmark rate to its highest level in 30 years at its December meeting. At that point, the bank chose to assess the broader impact of the rate hike on Japan’s economy. The ongoing Middle East crisis, however, has introduced considerable new uncertainty into that calculation.

Yen Weakness and Stagflation Concerns Cloud BOJ’s Rate Outlook

The yen’s recent depreciation against the U.S. dollar is putting added pressure on Japan’s import costs. The dollar approached the 160-yen level overnight, a mark last seen in 2024.

Finance Minister Satsuki Katayama stated that authorities are on “full guard” and ready to consider “all possible options” in response.

The Finance Minister’s comments drew widespread attention online, with market observers flagging the 160-yen level as a key threshold to watch.

The dollar has also attracted safe-haven buying since U.S.-Israeli forces launched attacks on Iran. Tokyo shares, meanwhile, have experienced steep declines as the conflict continues to stoke uncertainty.

Hiking interest rates is generally seen as an effective way to contain inflation. However, higher borrowing costs during an economic downturn can slow growth considerably.

This raises the risk of stagflation — a state of high inflation, high unemployment, and weak economic output. Stagflation is particularly hard to address, as the tools for fighting each problem tend to conflict.

The BOJ said it will continue monitoring financial market developments closely. The central bank remains focused on stably achieving its 2 percent inflation target over the long term. Any further policy decisions will depend on how the Middle East situation evolves in the coming weeks.

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