IMF Urges Japan to Keep Raising Rates Despite War Risks
The IMF is calling on Japan's central bank to keep hiking rates—even as the Middle East war adds "significant new risks" to the economic outlook. The recommendation comes as markets widely expect the Bank of Japan could raise rates as early as April.
Inflation pressures are building in Japan, driven by conflict-fueled oil prices and a weaker yen pushing up import costs. In a statement, the IMF said that while growth is expected to slow—partly due to the Iran war—moderate wage growth will support consumption. Risks to Japan's economic outlook and inflation are broadly balanced, the IMF said, with inflation expected to return to the BOJ's 2% target by 2027.
The IMF stressed that as underlying inflation moves gradually toward the target, rate hikes should continue in a gradual, data-dependent, and well-communicated manner—moving toward a neutral rate. It also said maintaining a flexible exchange rate is critical, serving as a reliable buffer against external shocks.
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