Former Bank of Japan official: The usual practice during periods of turmoil is to "stay put", and the outcome of the April meeting is uncertain.

Former Executive Director of the Bank of Japan, Kazuo Momma, pointed out on Monday that the developments in the Middle East have put the Bank of Japan in an extremely difficult situation. During highly uncertain times, the Bank of Japan's usual strategy is to observe and wait, to further observe how the situation will evolve. This has made the policy meeting on April 28th this month difficult to predict. Momma believes, "There may be various results in the next two to three months. In this uncertain environment, I believe the standard practice for any central bank is to wait and see how the situation develops." It is understood that with the escalation of the conflict between the US, Israel, and Iran, especially the threat of a naval blockade of the strategic strait of Hormuz by the US, has evolved into a global energy crisis. As Japan's supply of over 90% of oil highly depends on this route, the risk of disrupting the energy chain directly affects the nerves of Japan's monetary authorities. Momma made these remarks at a time when the US and Iran were unable to reach an agreement to end the war over the weekend. Last Sunday, US President Donald Trump warned that the US would implement a comprehensive naval blockade of the strategic strait of Hormuz, further escalating the standoff. The tension has escalated again, driving up oil prices, intensifying inflation pressures in Japan, which heavily relies on energy imports from the Middle East. Momma stated that the Bank of Japan lacks a clear stance on the recent direction of interest rates, indicating that the bank may not have decided on what action to take at the meeting on April 27th to 28th. Momma stated that the April meeting "will be a meeting with unpredictable results." Rinto Maruyama, Senior Foreign Exchange and Interest Rate Strategist at Mitsui Sumitomo Bank and Daiwa Securities, pointed out, "The escalation of tensions in the Middle East has increased the chances of the Bank of Japan having difficulty implementing a rate hike in the April meeting. If authorities do not signal a rate hike this week, as the market expects the central bank to 'lag behind the curve,' yields may continue to rise." However, the performance of the financial markets is ahead of policy implementation, signaling strong inflation fears. Driven by soaring oil prices and global risk aversion, Japan's 10-year government bond yields briefly rose to 2.49% on April 13, the highest level since 1997. The sharp fluctuations in the bond market reflect investors' deep concerns about runaway inflation, with market expectations that yen depreciation and rising energy costs will create a vicious cycle, forcing the central bank to defend the exchange rate and curb prices through interest rate hikes. This pressure is rapidly transmitting from the financial markets to the real economy, with significant downward revisions to profit forecasts for Japanese companies. According to the latest data, analysts have intensively lowered profit forecasts for 113 listed companies in the TOPIX 500 index in the past week, exceeding the number of upward revisions for the first time since July last year. High oil prices are squeezing profit margins in industries highly dependent on petroleum raw materials, such as chemical manufacturing and transportation, like an "invisible tax." From the perspective of the Bank of Japan, the deterioration of corporate profits could hinder the formation of a "wage-price" virtuous cycle. If companies cut wage growth due to cost pressures, the central bank's previous commitment to sustained inflation targets will lose support. Overnight swap market pricing shows that traders currently believe there is a 44% probability of a rate hike, compared to around 60% late last week.