The IMF urges the Bank of Japan to keep raising interest rates, saying that the Middle East war poses major new risks

Gate News message, on April 4, the International Monetary Fund (IMF) urged the Bank of Japan to continue raising interest rates, despite the Middle East war having posed a “significant additional risk” to Japan’s economic outlook. Against the backdrop of market consensus that the Bank of Japan may raise rates as early as April, the IMF made this recommendation. Driven by the conflict, higher oil prices and increased import costs from yen weakness are intensifying Japan’s inflation pressures. In a statement, the IMF said that although economic growth is expected to slow somewhat (partly because of the war with Iran), moderate wage growth will support consumption. The risks to Japan’s economic outlook and inflation are broadly balanced, and inflation is expected to return to the Bank of Japan’s 2% target level in 2027. The IMF emphasized that, as underlying inflation gradually moves toward the Bank of Japan’s target, Japan should continue to raise rates gradually in a flexible, well-communicated manner that relies on data, moving toward a neutral interest rate level. The IMF also pointed out that maintaining a flexible exchange-rate regime is crucial because it can serve as a reliable buffer for coping with external shocks.