HSBC economists have highlighted that the Bank of Japan is closely monitoring the impact of the Middle East conflict on wages and prices. According to Jin10, initial wage negotiations indicate a noticeable increase in Japanese wages, yet real wages remain suppressed by inflation. The situation is further complicated by an energy shock stemming from the Middle East, potentially disrupting the wage-price dynamics the Bank of Japan aims to observe.
HSBC anticipates that the Bank of Japan will raise interest rates by 25 basis points in July this year. However, a prolonged conflict in the Middle East could prompt an earlier tightening of policy or increase pressure for further action. This places the Bank of Japan in a familiar dilemma: raising rates too soon could harm fragile economic growth, while delaying could undermine consumer confidence. Additionally, excessive depreciation of the yen would attract close scrutiny from the United States.