The Bank of Japan is expected to deliver two interest rate hikes this year as planned, even if a peace agreement between the United States and Iran eases some energy price pressures, according to Seisaku Kameda, the central bank’s former chief economist.
With inflation rising due to the prolonged Middle East conflict, the BOJ is widely anticipated to raise its short-term policy rate to 1% from 0.75% at its two-day meeting concluding on Tuesday. That increase was originally projected for April but was delayed by the outbreak of the U.S.-Iran war.
Kameda, who remains closely connected to current policymakers, told Reuters that while a successful ceasefire and reopening of the Strait of Hormuz could moderate some inflationary forces, it would not fundamentally alter the BOJ’s commitment to normalizing monetary policy.
“But it won’t change the BOJ’s plan to push up still low real borrowing costs and normalize monetary policy by raising its policy rate at a pace of about twice a year,” he said.
He expects the next hike to come in October or December, following the current meeting. After Tuesday’s decision, the BOJ’s schedule includes meetings in July and September.
The central bank is navigating a complex environment. Inflation has been pushed higher by energy costs linked to the Iran war, which disrupted global oil flows through the Strait of Hormuz. At the same time, Japan’s economy has shown resilience, giving the BOJ room to gradually withdraw from years of ultra-loose policy without derailing growth.
Kameda, now executive economist at Sompo Institute Plus and involved in drafting BOJ forecasts from 2020 to 2022, noted that the central bank views the current rate path as essential for anchoring inflation expectations and supporting sustainable growth. Deputy Governor Shinichi Uchida, who will lead the post-meeting briefing on June 16 in Governor Kazuo Ueda’s absence due to medical treatment, is expected to maintain “constructive ambiguity” on future moves.
“Uchida is good at communicating with constructive ambiguity. With so much uncertainty over the outlook, he will signal the BOJ’s readiness to respond nimbly,” he said.
War’s Lasting Impact on Policy Timing
The U.S.-Iran conflict forced the BOJ to adjust its timeline earlier this year. What began as a relatively benign inflation environment quickly turned more challenging as oil prices spiked and global supply chains faced disruption. Kameda said the war’s energy shock made an April hike impractical, pushing the BOJ to act more cautiously while monitoring second-round effects on wages and broader prices.
A U.S.-Iran peace framework announced recently has helped ease some immediate concerns, with oil prices falling on hopes of normalized flows through the Strait of Hormuz. However, Kameda stressed that even a smooth resolution would not remove the need for gradual tightening. Real interest rates in Japan remain deeply negative, and the BOJ sees normalization as critical for financial stability and to avoid entrenching low inflation expectations.
Economists polled by Reuters expect the BOJ to reach 1.25% by the end of the year, with the June hike followed by another in the fourth quarter. This pace would represent a significant but measured withdrawal from decades of extraordinary monetary easing.
Japan’s economy has shown surprising resilience despite global headwinds. Strong corporate investment, a recovering tourism sector, and wage growth have supported activity, giving the central bank confidence to tighten policy. However, risks remain. A prolonged or renewed escalation in the Middle East could keep energy prices elevated, squeezing household budgets and corporate margins. At the same time, a stronger yen, which often accompanies rate hikes, could weigh on exporters.
The BOJ’s challenge is to thread the needle: raising rates enough to manage inflation without undermining growth or triggering financial market volatility. Markets will be watching Uchida’s tone closely for any hints on timing and the balance of risks.
Kameda’s assessment suggests continuity. The central bank is committed to a gradual normalization path, using the current environment of moderate growth and contained, but persistent, inflation to move away from negative rates and yield curve control. Economists note that the peace developments in the Middle East may provide a more favorable backdrop, but they do not change the underlying need to adjust policy settings that have been in place for years.
However, this marks another step in Japan’s long journey away from deflationary stagnation toward a more normal monetary framework. While the Iran war introduced unexpected volatility, the BOJ appears determined to stay the course. Tuesday’s decision and Uchida’s briefing will offer the clearest signal yet of how quickly that journey will proceed in the second half of 2026.
