Game of Chess by Bank of Japan Next Week Gets More Tangled～

Whenever tensions heat up in the Middle East, oil prices spike up, and for Japan, this is almost equivalent to an "inflation accelerator". Japan relies on imports for roughly 90% of its energy needs, so when oil prices rise, costs immediately translate into electricity bills, transportation, and raw material prices, naturally pushing CPI upward. What's more troubling is that the yen hasn't been performing well lately, having depreciated to around 160 against the US dollar. This combo of weak yen + high oil prices is almost the textbook template for imported inflation～

So the Bank of Japan is actually in quite a bind right now.

On one hand, both inflation and exchange rates are applying pressure, theoretically giving reasons to lean hawkish; on the other hand, this inflation is more cost-driven in nature, essentially "levying a tax on household consumption". If they rashly hike rates, it could directly suppress the already-not-so-strong consumer recovery.

Market consensus now is: March will likely be a wait-and-see month, with the real action window probably coming in April or July.

In other words, the Bank of Japan is now more like walking a tightrope—
Inflation and exchange rates on the left side, economic recovery on the right.

One step too fast, and they might misstep; one step too slow, and the yen will keep lying flat～

#BOJ # USDJPY