BOJ's Ueda Warns Crude Oil Surge Fuels Inflation Risks

Bank of Japan Governor Kazuo Ueda has sounded a warning about rising crude oil prices, stating that the surge in energy costs is creating upside risks to inflation that could spill over into a broader range of goods and services. In a speech at the Kisaragi-kai meeting in Tokyo, Ueda highlighted that Japan's wage- and price-setting environment has fundamentally changed, making it more likely that higher energy prices will pass through to other sectors. He noted that crude oil is a key raw material across industries, so rising prices will push up not just energy but general prices. The BOJ's baseline outlook still expects moderate economic growth, supported by strong corporate profits, wage growth, and AI-related demand, but Ueda emphasized vigilance against inflation moving materially above target.

The central bank anticipates underlying inflation to gradually reach its 2% target between the second half of fiscal 2026 and fiscal 2027. Ueda reiterated that the BOJ's policy framework anticipates additional rate increases as conditions evolve, and the bank will continue assessing whether upside inflation risks outweigh downside risks to growth. This hawkish stance signals that the BOJ is prepared to act if inflation proves more persistent than expected, even as the economy faces headwinds from higher energy costs. The comments come amid ongoing tensions in the Middle East, which have contributed to the rise in crude oil prices.

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