Sources indicate that the Middle East conflict may cause the Bank of Japan to postpone its interest rate hike in March; the only factor contributing to a rate hike would be a significant depreciation of the yen.

Sources say the renewed market volatility triggered by the Middle East conflict has increased the likelihood of the Bank of Japan (BOJ) pausing its interest rate hike in March, as policymakers need more time to assess its impact on the economy. The only factor that could prompt the BOJ to raise rates at its March 18-19 meeting is a sharp depreciation of the yen. Previously, after the US strike on Iran, investors flocked to the safe-haven dollar, putting pressure on the yen and pushing it close to the 160 level. However, as the Middle East conflict escalates, impacting financial markets and pushing up oil prices, the recovery prospects of an economy heavily reliant on imported fuel have been clouded, raising the bar for a March rate hike. Sources indicate that the central bank is cautiously assessing the impact of the new geopolitical crisis on monetary policy. Markets also lowered their bets on a March rate hike after BOJ Deputy Governor Ryozo Himino failed to give a clear signal on Monday regarding upcoming policy adjustments. The lack of hawkish signals from BOJ officials contrasts with previous pronouncements, where officials typically hinted at changes in advance to avoid catching the market off guard. (Jinshi)