Japan's Central Bank Is Raising Rates, Carefully

The Bank of Japan kept its benchmark interest rate at 0.75% at its March meeting, the highest level since 1995. The decision was expected, and passed 8-1, with one board member pushing for an immediate move to 1%. The Bank's official position is that Japan's economy is recovering moderately, but the Middle East conflict and its effect on energy prices has introduced enough uncertainty to justify patience.

Japan imports a substantial share of its energy, making it one of the economies most exposed to a prolonged Hormuz closure. China, India, Japan, and South Korea together account for 75% of the oil and 59% of the LNG that flows through the strait. The Bank of Japan has signaled it intends to keep raising rates gradually as long as wage growth and inflation evolve as expected, but geopolitical shocks are a complicating factor.

Japan's economy is projected to grow about 1% in the fiscal year ahead, supported by fiscal stimulus, a push into AI infrastructure, and a new government committed to higher defense spending and abolishing the gasoline tax. The yen's stability will be a key watch point: if it breaks significantly against the dollar, the Bank may be forced to act faster than it would prefer.

BoJ policy rate (March 2026): 0.75% — Highest since September 1995

BoJ vote: 8-1 to hold — One dissenter pushed for 1.0%

Japan GDP growth forecast (2026): ~1.0% — IMF / Bank of Japan projections

Japan's share of Hormuz oil: ~75% of East Asia oil flows — Jointly with China, India, South Korea