IMF, BOJ Back Rate Hikes Amid Middle East Conflict Risks

The International Monetary Fund and senior Bank of Japan officials called for continued interest rate increases on Friday, even as the escalating Middle East conflict introduces substantial risks to Japan's economy, including surging oil prices and a weakening yen. The statements, issued amid market anticipation of a potential rate hike as early as this month, underscore the central bank's determination to steer inflation toward its 2 percent target despite external pressures.

In a policy consultation statement released from Washington, the IMF commended Japan's economic resilience to global shocks and endorsed the Bank of Japan's gradual withdrawal of monetary stimulus. The fund projected that inflation would converge to the 2 percent goal by 2027, with risks to the outlook and prices remaining balanced. "As underlying inflation converges toward the BOJ's target, gradual rate hikes toward neutral should continue in a flexible, well-communicated and data-dependent approach," the IMF said. It also emphasized the need for a flexible exchange rate to absorb shocks.

Echoing this view, Koji Nakamura, the Bank of Japan's executive director for monetary policy, told parliament in Tokyo...