BOJ Governor: "Iran War Is the Fifth Oil Shock...Concerns Over Inflation Impact"

Kazuo Ueda, Governor of the Bank of Japan (BOJ), expressed concerns about the impact of rising oil prices on inflation. He analyzed that if the increase in oil prices is not temporary and is instead reflected in wages, inflation expectations, or pricing behavior, it could become a persistent phenomenon.

According to Bloomberg and other sources on May 27, Governor Ueda referred to the surge in oil prices triggered by the war between the United States/Israel and Iran as the "fifth oil shock" during the opening ceremony of an international financial conference held in Tokyo, Japan, on this day. He stated, "Japan's experience shows that an oil shock is never just a simple oil shock. It serves as a test for the entire inflation regime."

Kazuo Ueda, Governor of the Bank of Japan. Photo by Reuters Yonhap News

He continued, "The line between temporary inflation and persistent inflation is not mechanically defined," adding, "Even a temporary shock can become persistent if it changes wages, inflation expectations, or pricing behavior. Conversely, even a large shock may remain temporary if these channels do not function."

In his speech, Governor Ueda did not provide any specific signals regarding the future path of interest rates. However, Bloomberg interpreted his remarks reflecting concerns about high oil prices as supporting market expectations for a possible rate hike in June.

Governor Ueda has repeatedly emphasized the need for the BOJ to pay attention to inflation risks, noting that changes in Japanese corporate behavior have begun to emerge since the outbreak of the war in Iran. This suggests that companies are becoming more accustomed to passing on increased costs to consumers through price hikes. He stated, "Initial conditions are extremely important when an oil shock occurs," and added, "If inflation expectations are already high and wage growth is accelerating, the risk of secondary spillover effects also increases."

On this day, as the yen showed weakness, Governor Ueda expressed concern about the inflationary impact of the recent depreciation of the yen, citing the intensified inflation that occurred when the yen weakened in response to the shock caused by the outbreak of the war in Ukraine in 2022. As of 3:55 p.m. Korea time on May 27, the exchange rate stood at around 159.3 yen per dollar.

This content was produced with the assistance of AI translation services.