Bank of Japan Governor highlights wage and exchange rate conditions could turn temporary oil price surges into sustained inflation.
Bank of Japan Governor Kazuo Ueda cautioned that the current Middle East conflict poses Japan’s fifth major oil shock, with potential for temporary price spikes to become persistent. Key factors include wage growth, inflation expectations, and exchange rates, which could amplify inflationary pressures.
Ueda cited Japan’s historical responses to oil shocks, noting the 1973 crisis triggered 20-30% inflation and wage growth due to delayed monetary tightening. In contrast, the 1979 shock was contained by faster policy action and restrained wage behavior. Recent episodes, including post-2021 inflation, saw core CPI shift away from deflationary trends without spiraling.
Medium to long-term inflation expectations in Japan have risen to a 1.5-2% range, reducing the buffer against persistent inflation. The current shock tests whether Japan can avoid a repeat of past wage-price spirals.