Bank of Japan keeps rates steady as expected, warns Iran war may push up inflation

The Bank of Japan kept its rates steady at 0.75% as expected, but noted that inflation risks now are tilted to the upside due to the Iran war.In its statement, the BOJ said that the decision was split, with eight members of the nine-member board voting in favor of a hold. In its statement, the BOJ said that while inflation is expected to temporarily decelerate below 2% in the near term, the conflict in the Middle East will exert "upward pressure, affected by the recent rise in crude oil prices."The decision comes as Tokyo grapples with the fallout from the Iran conflict, which has pushed up energy prices. The country gets about 95% of its energy imports from the Middle East. Japan has released crude stockpiles, while Prime Minister Sanae Takaichi pledged to keep retail gasoline prices "in check" at a nationwide average of about 170 yen per liter.Analysts from Dutch bank ING wrote in a note last Friday that "It will be important to examine closely how the BOJ evaluates the economic fallout from the Middle East conflict and the results of the spring wage negotiations. These factors will influence whether a rate hike occurs in April or June."The central bank closely monitors the spring wage negotiations, also known as "shunto" talks, which involve Japan's labor federations and the country's biggest firms. After years of stagnant wages, these talks are crucial to sustainably achieving the BOJ's 2% inflation target.Inflation in Japan currently stands at 1.5% as of January, the first time headline inflation has fallen below the 2% target after 45 straight months of surpassing it. On Wednesday, Japanese media reported that many large companies had fully accepted their unions' pay-hike demands, which would mark the third year in a row that pay hikes have exceeded 5%. Nikkei reported this was the first such streak since 1989-1991, and that the preliminary results of the shunto talks will be published on March 23 by the Japanese Trade Union Confederation, or Rengo.The increase will be a welcome relief to Japanese workers, who have seen their real wages dip every month in 2025. In January, however, real wages climbed 1.4% from a year earlier. The BOJ decision also comes amid reported opposition to rate hikes from Prime Minister Sanae Takaichi. After her landslide Lower House victory in February, Japanese newspaper Mainichi Shimbun had reported that in late February, Takaichi had expressed "reluctance" to BOJ governor Kazuo Ueda about raising interest rates further.This is breaking news, please check back for updates.Got a confidential news tip? We want to hear from you.Sign up for free newsletters and get more CNBC delivered to your inboxGet this delivered to your inbox, and more info about our products and services.© 2026 Versant Media, LLC.

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