Bank of Japan Holds Rate at 0.75% as War Risks Rise 2026

Decision: policy rate kept at 0.75%

The Bank of Japan (BOJ) left its benchmark interest rate unchanged as uncertainty around the war in Iran and higher energy prices clouded Japan’s economic outlook. The central bank held the policy rate steady at 0.75% at the end of its two-day policy meeting, according to its statement. The decision came as markets had been positioning for a possible hike, before the Middle East escalation shifted expectations.

A split board signals rising internal pressure

The rate decision passed by a 6-3 vote, described as the biggest divide under Governor Kazuo Ueda’s governorship. The split underlined tension between members focusing on inflation risks and those preferring to wait for more clarity on the economic fallout from the conflict. The BOJ has been trying to communicate a path toward normalization after ending unconventional monetary easing two years ago, but the war has made that messaging harder.

Inflation forecast raised, growth forecast cut

In its quarterly outlook report, the BOJ raised its forecast for core inflation to 2.8% for this fiscal year, higher than markets expected. At the same time, it cut its economic growth projection to 0.5% from 1% previously. The combination reflects the central bank’s dilemma: oil-driven cost pressures can lift inflation even as demand weakens.

Why the Middle East shock matters for Japan

Japan’s dependence on fuel imports makes it sensitive to disruptions in energy markets. The BOJ highlighted the need to watch developments in the Middle East and movements in oil prices, listing the war in Iran and crude oil swings as risk factors to the outlook. Policymakers have to weigh whether higher energy costs become a temporary shock or feed into broader, longer-lasting inflation.

Ueda: more time needed to judge the impact

Governor Kazuo Ueda said he needs more time to understand how the war will affect the economy. He said the BOJ kept policy unchanged because risks tied to rising crude oil prices had newly emerged. Ueda also said the central bank would make an “appropriate policy decision” the following month after examining the new risk scenario and outlook when more data become available.

The yen and real rates add pressure to tighten

Officials and market participants have also been watching the yen. A weaker currency can amplify imported inflation by lifting the cost of energy and other imports. Japan’s trade minister Ryosei Akazawa said an April hike “could be among options” to support the currency as Japan’s real interest rates remained quite low. The BOJ has also noted that real rates remain significantly low.

Market pricing shifts toward a later hike

The war in Iran disrupted expectations of a hike at the latest meeting, with many economists switching to forecasting a June increase. Reuters also cited the possibility of moves in April, June, or July, noting the decision timing depends heavily on the yen and the evolving ceasefire situation. The BOJ has reiterated that if economic activity and prices align with its projections, further tightening remains on the table.

What recent meetings show about the policy path

Recent votes show the tension around timing. In March 2026, the BOJ held the key short-term rate at 0.75% in a widely expected decision that passed by an 8-1 vote, with Hajime Takata dissenting in favor of a hike to 1%. The BOJ said at that time that Japan’s economy was recovering moderately, while warning that escalating Middle East tensions clouded the outlook and could push inflation higher through crude oil.

Key data points from the report and market reaction

Oil-price risk and the stagflation concern

The BOJ’s challenge is that oil-price spikes can push inflation up while weighing on growth. One Reuters-cited comment from Deputy Governor Ryozo Himino captured the dilemma: if the conflict persists and pushes down growth while accelerating inflation, it becomes a difficult problem, and the bank must assess the scale and duration of the shock. Separately, oil officials in the Gulf’s biggest producer were cited saying prices could soar past $180 a barrel if disruptions persist until late April.

What investors will watch next

Investors are monitoring wages as well, including Japan’s spring “shunto” wage negotiations, which the BOJ has flagged as relevant to the inflation outlook. The central bank has also stressed the need to track geopolitical risks, energy markets, and global economic trends. With policy held at 0.75% for a second consecutive meeting and the board split widening, the next meeting and updated data will be central to whether the BOJ can resume tightening without destabilising expectations.

Conclusion

The BOJ kept its policy rate at 0.75% as the Iran war and oil-price volatility lifted inflation risks while darkening the growth outlook. With core inflation forecast raised to 2.8% and growth cut to 0.5%, officials signalled a cautious stance while keeping the option of future hikes open. The next policy decision will hinge on incoming data and how energy prices and Middle East risks evolve.