The International Monetary Fund urges the Bank of Japan to continue raising interest rates

The International Monetary Fund urges the Bank of Japan to continue raising interest rates, despite “major new risks” to Japan’s economic outlook stemming from the Middle East conflict.

Earlier, the market expected that the Bank of Japan would raise rates as early as April, to address inflation pressure brought on by the conflict-driven surge in oil prices, as well as higher import costs resulting from the yen’s weakness.

In a statement issued in Washington on Friday, the International Monetary Fund said that although it expects Japan’s economic growth to slow—partly due to the conflict with Iran—gradual wage growth will support consumption. The statement was released after the IMF concluded its policy consultations with Japan.

The International Monetary Fund said that “the overall balance between the economic outlook and inflation risks is broadly maintained,” and expects the inflation rate to move close to the Bank of Japan’s 2% target in 2027.

In the statement, the International Monetary Fund said its executive board agreed that the Bank of Japan’s approach to exiting its accommodative monetary policy is appropriate.

The statement said, “They noted that, as the underlying inflation rate moves closer to the Bank of Japan’s target, interest rates should continue to be raised gradually to the neutral level in a flexible manner, with smooth communication, and based on data.”

The statement also added that “the Directors emphasized the importance of maintaining a flexible exchange rate regime as a dependable shock-absorbing mechanism.”

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Editor: Jian Yu SF069