The International Monetary Fund urges the Bank of Japan to continue raising interest rates

DeepFlowTech · 2026-04-04T07:28:45+00:00

The International Monetary Fund recommends that the Bank of Japan continue to raise interest rates, despite the increased economic risks from the Middle East conflict. The IMF believes that moderate wage growth can support consumption and expects inflation to return to 2% by 2027. It emphasizes the importance of a flexible exchange rate mechanism to respond to external shocks.

DeepFlowTech

2026-04-04 07:28:45

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Deep Tide TechFlow message, April 04, despite the Middle East war having already posed “major new risks” to Japan’s economic outlook, the International Monetary Fund (IMF) urged the Bank of Japan to continue raising interest rates. Against the backdrop of market consensus that the Bank of Japan may raise rates as early as April, the IMF made this recommendation. Fueled by conflict-driven oil price increases and higher import costs brought on by yen weakness, underlying inflation pressures are intensifying.

In its statement, the IMF said that although economic growth is expected to slow somewhat (partly because of the Iran war), moderate wage growth will support consumption. The risks facing Japan’s economic outlook and inflation are broadly balanced, and inflation is expected to return to the Bank of Japan’s 2% target level in 2027. As underlying inflation gradually moves toward the Bank of Japan’s target, the approach should be continued gradual interest-rate hikes in a flexible, well-communicated, and data-dependent manner, moving toward the neutral interest-rate level. The IMF also emphasized that maintaining a flexible exchange-rate regime is crucial, as it can serve as a reliable buffer for addressing external shocks. (Jin10)

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