The International Monetary Fund has urged the Bank of Japan to continue raising interest rates, even as the Middle East war posed \u201csignificant \u200bnew risks\u201d to the country\u2019s economic outlook.<\/p>\n
The proposal comes amid market expectations the BOJ \u200cwill raise \u200cinterest rates as soon as April in the face of mounting inflationary \u200bpressure from the conflict-induced spike in oil prices, and higher import costs blamed on the weak yen.<\/p>\n
While growth is expected to moderate, due partly to the Iran war, gradual \u2060wage gains will underpin consumption, the IMF said in a statement issued from Washington on Friday \u2060after the conclusion of its policy consultation with Japan.<\/p>\n
\u201cRisks to the outlook and inflation are broadly balanced\u201d with inflation expected to converge to the BOJ\u2019s 2% \u200btarget in 2027, the IMF said.<\/p>\n
In \u2060the statement, the IMF said its executive board commended Japan\u2019s \u201cstrong economic resilience\u201d to global shocks and agreed the BOJ was appropriately withdrawing \u2060monetary accommodation.<\/p>\n
\u201cThey noted that \u200bas underlying inflation converges toward the BOJ\u2019s target, gradual rate \u200bhikes toward neutral should continue\u201d in a flexible, well-communicated and data-dependent approach, the statement \u200bsaid.<\/p>\n
\u201cDirectors \u200cstressed the importance of maintaining a flexible exchange rate as a credible shock absorber,\u201d it added.<\/p>\n
The BOJ ended a massive stimulus in 2024 and raised interest rates several times, including in December, on the view that Japan was on the cusp \u200cof durably hitting its 2% inflation target.<\/p>\n
The central bank has stressed its readiness to keep raising rates on the expectation that underlying inflation will converge to its 2% target sometime from the second half of fiscal 2026 into fiscal 2027. Japan\u2019s fiscal year starts in April.<\/p>\n
While rising oil \u200bprices hurt \u200bJapan\u2019s import-reliant economy, BOJ policymakers have signalled their concern they will add \u200bto inflationary pressures from years of steady wage gains and broader price increases.<\/p>\n
The BOJ\u2019s slew of \u2060hawkish communication has prodded markets to price in a roughly 70% chance of a rate hike in April.<\/p>\n
The yen\u2019s slide toward the key \u00a5160 level has also kept markets on alert for the chance of currency intervention by Japanese authorities.<\/p>\n
Finance Minister \u200bSatsuki Katayama issued a fresh warning against yen bears on Friday, saying Japan stood ready to act against speculative moves in the currency market.<\/p>\n
\u201cWe\u2019re ready to take all available means that are legally feasible, be it conventional or non-conventional,\u201d she told an online program on Friday evening.<\/p>\n
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