Report: The Bank of Japan may keep interest rates unchanged in March, while the option to raise rates in April is still under consideration.

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The escalation of the Iran situation has not deterred the Bank of Japan (BOJ) from its rate hike plans. According to sources, BOJ officials will continue to push forward with interest rate normalization, and the possibility of an April rate hike has not been ruled out.

Bloomberg reports, citing informed sources, that although BOJ officials believe the likelihood of a rate hike at the policy meeting ending March 19 is very low, they have so far not changed their established stance — as long as the economic outlook progresses as expected, they will continue with rate hikes. Officials say policy decisions will be made one meeting at a time, and an April rate hike is not impossible.

The tense situation in the Middle East has brought new uncertainties to this outlook. BOJ officials are currently focused on assessing how the conflict around Iran will affect economic conditions and financial markets at home and abroad.

Before the U.S. and Israel launched attacks on Iran, Japan's economic and inflation data were largely in line with the BOJ’s forecasts, sources said. How the current situation develops will largely determine the BOJ’s next steps.

Steady in March, April Window Remains Open

According to sources, BOJ officials will continue to push forward with rate normalization, and the possibility of an April hike is still on the table. The chance of a rate hike at the March meeting is generally viewed as low by officials, but this does not indicate a pivot in the rate hike path.

Officials emphasize that their overall stance—that if economic conditions develop as expected, rate hikes will proceed—remains unchanged, and policy will continue to be evaluated "meeting by meeting".

This statement means that the April meeting is still a potential window for a rate increase. The key factor influencing the timeline is the duration of the Iran conflict and its spillover effects, which officials see as core variables when assessing Japan’s economic outlook and the direction of interest rates.

Oil Price Risks: Inflation Expectations May Rise

BOJ officials remain highly vigilant about the risk that rising oil prices could drive up inflation, especially as Japanese companies have shown a clear increase in willingness to pass costs onto consumers.

According to informed sources, if prolonged tensions in the Middle East keep crude oil prices high, this may boost inflation expectations and further strengthen the momentum for price increases.

This assessment has dual implications for the BOJ: on one hand, persistent cost-push inflation may justify further rate hikes; on the other hand, if the situation deteriorates more than expected and hits economic growth, it could become a constraint. Officials’ current stance is to continue observing rather than preemptively tightening or loosening forward guidance.

Before Iran Conflict, Japan’s Economy Largely in Line with Expectations

According to sources, before the U.S. and Israel launched attacks on Iran, Japan’s economic and inflation trends were generally in line with the BOJ’s previous forecasts.

This background shows that external shocks—not endogenous changes in Japan’s domestic fundamentals—are currently the main disruptive factor in the assessment.

The core challenge facing the BOJ is how to balance its existing rate hike path with external uncertainties—if it pauses rate hikes too early due to geopolitical factors, the market may misinterpret its policy intentions; if it acts rashly and ignores the spillover risks of the shocks, it may be accused of policy mistakes. Officials are currently choosing to maintain an open stance and make data-driven decisions, which directly reflects this dilemma.

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