BOJ Governor Ueda Warns Fifth Oil Shock May Force June Rate Hike
Bank of Japan Governor Kazuo Ueda warned that Middle East-driven oil price spikes could trigger persistent inflation, signaling a potential interest rate hike as early as June.
Kazuo Ueda, Governor of the Bank of Japan, warned on May 27 that the current oil price spike driven by the U.S.-Israeli war on Iran constitutes Japan's fifth oil price shock and could trigger persistent inflation if it feeds into wages and expectations. Speaking at the 2026 BOJ-IMES Conference in Tokyo, Ueda argued that energy shocks are tests of an entire inflation regime and should not be viewed in isolation, as their impact depends on wages, demand, and exchange rates.
Ueda contrasted historical responses to oil shocks, noting the 1973 wage-price spiral, the contained response in 1979, and the deflationary equilibrium of the mid-2000s. He stated that if inflation expectations are high and wages accelerate, the risk of a second-round wage-price spiral increases, whereas stagnant wages and low expectations could limit the shock's impact. Japan's medium to long-term inflation expectations now sit in the 1.5-2% range, with core inflation already exceeding the 2% target in April.
The oil-driven supply crunch has already pushed Japanese food and beverage companies to raise prices. The Bank of Japan's policy board has expressed growing concern over crude prices, with three of nine members already supporting a rate hike. The board will meet on June 15 and 16 to decide whether to raise the benchmark interest rate from its current level around 0.75%. While Ueda refrained from specifying timing for the next policy move, his remarks signaled a more hawkish stance and fueled market expectations for a June increase.
