Bank of Japan held rates at 0.75% in March in an 8-1 vote, with minutes showing the board debated Iran war inflation risks and the danger of falling behind the curve on price stability.
Summary: The Bank of Japan’s Policy Board voted 8-1 at its March 18-19 meeting to keep the uncollateralized overnight call rate at around 0.75%, with board member Takata Hajime the sole dissenter arguing for an immediate hike to 1.0%, per the official minutes Members agreed Japan’s economy was recovering moderately but flagged that the Iran conflict had pushed crude oil prices sharply higher, increased financial market volatility, and introduced meaningful uncertainty into the inflation and growth outlook, according to the minutes The board debated whether to look through the inflationary impact of the Iran conflict or treat it as a persistent risk requiring a policy response, with many members drawing lessons from the post-Ukraine experience in Europe and the U.S. where delayed action contributed to a subsequent surge in prices, per the minutes Several members warned that Japan’s more active wage and price-setting environment meant second-round inflation effects were more likely to emerge than in 2022, raising the risk that the BOJ could unintentionally fall behind the curve, according to the minutes CPI inflation had fallen back to around 2% at the time of the meeting, aided by government energy subsidies, but the board expected upward pressure to return as crude oil costs fed through, per the minutes Members reaffirmed that further rate hikes remained appropriate if the economic and price outlook was realised, with the pace and timing to be determined meeting by meeting based on wages, prices and the evolving Iran situation, according to the minutes The Bank of Japan held its policy interest rate at 0.75% at its March meeting, with board members agreeing that the escalating conflict in the Middle East had introduced too much uncertainty to justify a further…