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BOJ may be overlooking real risk from Iran war, says ex-c.bank official
A passerby walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2025. REUTERS/Issei Kato/File Photo Purchase Licensing Rights, opens new tabSummaryOil, naphtha shortage may hit import-reliant economy, Atago saysBOJ should be thinking about damage control, not rate hikeFactory output seen falling in March, hurt growth from Q2BOJ report due April 6 may reflect corporate survey findingsTOKYO, April 2 (Reuters) - Japan's economy may face supply shocks and slumping demand from the Iran war, a risk the central bank may be overlooking by focusing on inflationary pressures, former central bank official Nobuyasu Atago said on Thursday.A slew of recent hawkish communication from the Bank of Japan has led markets to bet on roughly a 70% chance of a rate hike in April, as soaring oil costs from the Middle East conflict and higher import costs from a weak yen heighten price pressures. Sign up here.Even as they kept rates steady in March, BOJ policymakers debated additional rate hikes with some worries that the central bank may be falling behind the curve in coping with inflation risks.Atago warned that an expected shortage of naphtha and other chemical products made during the oil-refinery process could be a bigger risk that could hurt the economy."Just like a natural disaster, for this crisis one needs to think about a huge disruption to the flow of goods, rather than fretting how high prices might rise," said Atago, who is currently chief economist at the Rakuten Securities Economic Research Institute."What the BOJ needs to contemplate is not whether to raise rates in April, but how to pump liquidity into the market in case the economy tanks and threatens to push some firms under."Markets have been roiled since the U.S.-Israeli war on Iran effectively shut the Strait of Hormuz, a passageway for about a fifth of global oil and gas flows, which has driven up crude oil prices.Hopes for a swift end to the war faded on Thursday after U.S. President Donald Trump vowed more aggressive strikes on Iran, heightening challenges for countries like Japan that rely on imports of Middle Eastern oil and naphtha.The bulk of naphtha consumption is for petrochemical use, where it is cracked in steam crackers to produce ethylene and propylene - core building blocks for plastics, synthetic fibres and other products.A shortage of naphtha would hit factory output and the damage to the broader economy would intensify from the current quarter, Atago ...
BOJ keeps rate‑hike door open even as Iran war squeezes firms
TOKYO: The Bank of Japan will keep raising interest rates if its economic forecasts hold, a senior central bank official said, reinforcing a tightening bias even as fresh surveys show firms feeling the pinch of rising fuel costs linked to the Iran war.While higher oil prices pose risks to economic growth, they could also push up underlying inflation by raising long-term inflation expectations, said Koji Nakamura, the BOJ's executive director overseeing monetary policy, in parliament on Friday.The oil-driven pressure on underlying inflation might be bigger than in the past as companies are becoming more eager to push up prices and wages, he said."If our economic and price projections were to materialise, we will likely continue to raise interest rates," Nakamura said, adding that the degree and timing of future increases will depend on economic, price and financial conditions."We will reach an appropriate decision at each policy meeting by updating our economic, price projections and our views on risks using data available at the time," he added.Nakamura's comments underline the BOJ's readiness to press ahead with moderate rate increases, even as fresh pressures build from outside Japan's borders.Surging fuel costs and pricier imports driven by a weak yen are adding to inflation at home, complicating the central bank's delicate balancing act.The message came alongside an increasingly hawkish communication from the BOJ in recent weeks - rhetoric that has pushed markets to price in about a 70 per cent chance of another rate hike as early as this month.Yet the backdrop is fraught. Japan's heavy dependence on Middle Eastern fuel leaves its economy acutely exposed to energy shocks and supply disruptions stemming from the war.Those strains are already filtering through to the corporate sector. Business sentiment worsened sharply in March, with industries from transportation and retail to machinery and chipmaking fretting about higher fuel costs, a survey by private think tank Teikoku Databank showed on Friday.It marked the first time since September 2023 that sentiment deteriorated across all 10 sectors covered in the poll, which was conducted online between March 17 and 31 - weeks after the US-Israeli attacks on Iran on Feb 28.The yen has also fallen over two per cent against the dollar since the war erupted."Surging crude oil prices have pushed up a broad range of input costs, while the flow of goods is slowing," a fertiliser maker was quoted as saying in the s...
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