Middle East conflict fallout raises possibility BoJ could hold off on March rate hike

As the conflict in the Middle East has amplified volatility in financial markets, speculation has emerged that the Bank of Japan (BOJ) is increasingly likely to refrain from raising interest rates this month.

According to Odaily, a media outlet specializing in virtual assets (cryptocurrencies), sources familiar with the matter said on the 3rd, “New market volatility triggered by the Middle East conflict is reducing the likelihood of a March rate hike,” adding that “policymakers need more time to assess the impact on the economy.”

The sources noted, however, that “the only factor that could prompt a rate hike at the Monetary Policy Meeting on March 18–19 would be a sharp weakening of the yen.”

Previously, after the U.S. strikes on Iran, investors moved into the dollar as a safe-haven asset, putting downward pressure on the yen, which approached the 160-yen-per-dollar level. But as the Middle East tensions spread, market anxiety has intensified and international oil prices have risen, a development seen as adding to headwinds for Japan’s recovery outlook given its heavy reliance on energy imports.

The sources said they are “carefully checking how the geopolitical crisis could affect monetary policy.” They added that “the fact that senior BoJ officials have not recently sent hawkish signals is also a factor dampening expectations for a March hike.”