BOJ Governor Sees Oil Price Surge as Test of Inflationary Mettle

By Megumi Fujikawa

TOKYO--The current energy shock could rewrite Japan's inflation outlook, but the impact isn't black and white, says Bank of Japan Gov. Kazuo Ueda.

"Central banks should not look at oil prices in isolation. The same oil price increase can have very different effects depending on wages, expectations, demand, and exchange rates," Ueda said Wednesday.

In the opening statement of an international conference held at the bank's headquarters in Tokyo, Ueda delineated the nuances of how higher energy costs can feed through to inflation.

For example, if inflation expectations are high and wages are accelerating when oil prices surge, the risk of second-round inflation effects is large. However, if expectations remain low and wages are stagnant, even a massive cost shock may fail to drive up underlying inflation, he said.

Past oil shocks show the variety of ways in which consumer prices react under those conditions, the BOJ governor said. During the 1973 crisis, Japan experienced a typical wage-price spiral the following year, with both growing 20% to 30%.

That didn't happen during similar episodes of oil price turbulence around 1979 and 1980 because of a combination of slower wage growth, a stronger yen and swift monetary policy action.

The BOJ's policy board has signaled that it is becoming more worried about the recent increase in crude prices caused by tensions in the Middle East, fueling market expectations for an interest-rate increase in June.

But Ueda on Wednesday refrained from giving any hints on the timing of the bank's next move.

"Japan's experience shows that oil price shocks are never just oil price shocks," he said. "They are tests of the entire inflation regime."

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

May 26, 2026 21:17 ET (01:17 GMT)