Bank of Japan Holds Rates, Warns of Inflation Risks Amid Global Tensions

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Tokyo: The Bank of Japan has kept its key interest rate unchanged at 0.75%, even as it raised its inflation outlook due to rising global tensions and higher oil prices.

The decision was not unanimous, with some policymakers pushing for a rate hike, arguing that risks to prices are increasing. The central bank now expects inflation to rise above its 2% target, while economic growth is likely to slow more than previously forecast.

Officials warned that higher crude oil prices, linked to the ongoing Middle East crisis, could hurt businesses and reduce household spending power. This has raised concerns about a possible period of slow growth combined with rising prices.

Experts say Japan could face a mild “stagflation-like” situation, where inflation remains elevated but economic growth stays weak. The country had only just avoided a recession at the end of 2025, making the outlook more uncertain.

Recent data shows inflation has started to rise again, driven mainly by energy costs. The government has introduced measures like fuel subsidies to ease the burden on consumers.

The central bank’s cautious stance also comes as bond yields rise and the Japanese yen remains weak. Analysts say the decision reflects not just inflation concerns, but also an effort to stabilise the currency.

Overall, the outlook for Japan’s economy remains fragile, with global risks continuing to weigh on growth and prices.