By Sama Marwan,
The International Monetary Fund has urged the Bank of Japan to continue raising interest rates, despite the war in the Middle East posing “significant new risks” to Japan’s economic outlook.
In a statement following the conclusion of its consultations with Japan, as reported by the financial news platform MarketScreener, the IMF noted that although economic growth is expected to slow—partly due to the war with Iran—gradual wage increases are likely to support consumption. It added that risks to the outlook and inflation are broadly balanced, with inflation expected to approach the Bank of Japan’s 2% target by next year.
The statement also said that the IMF’s Executive Board praised the “strong resilience of the Japanese economy” in the face of global shocks, considering that the central bank is moving appropriately in withdrawing its monetary easing policies.
It emphasized that gradual interest rate increases toward a neutral level should continue, with a flexible, data-driven approach and improved communication with markets. It also stressed the importance of maintaining a flexible exchange rate as a reliable tool for absorbing shocks.
This direction comes amid market expectations that the Bank of Japan may raise interest rates as early as April, as inflationary pressures rise due to higher oil prices linked to the conflict, along with increased import costs resulting from the weakening yen.
