Shigeta Kazuo throws out the "Fifth Oil Price Shock" theory: the risk of non-temporary inflation is rising, and the market is pricing in a 75% probability of a June rate hike by the Bank of Japan.

Bank of Japan Governor Haruhiko Kuroda said that it is necessary to remain vigilant about the impact of soaring oil prices on the trend of core inflation, but did not give a clear indication of how this dynamic might affect the outcome of next month's policy meeting. Speaking at the opening of a two-day international banking conference in Tokyo on Wednesday, Kuroda said, "Japan's experience shows that oil shocks are not just oil shocks. They are a test for the entire inflation system." He traced the impact of oil shocks back to the 1970s and noted, "We are actually facing the fifth oil shock." In line with the usual practice of speaking at the annual conference, the governor avoided giving any public signals about the policy path. Nevertheless, Kuroda's comments, reflecting concerns about the impact of high oil prices, may support market speculation about the prospect of a rate hike at the next policy meeting on June 16. Kuroda said, "The boundary between temporary inflation and persistent inflation is not mechanical," adding, "If a temporary shock changes wages, expectations, and pricing behavior, it becomes persistent." Pricing in the overnight swap market indicates that traders see a 75% chance of a 25 basis point rate hike next month. Mizuho Financial Group CEO Tatsufumi Sakai suggested on Wednesday that a significant rate hike might be better for the bond market. Following the outbreak of conflict in the Middle East, Kuroda has repeatedly said that the central bank needs to monitor the upside risks to inflation, as there are signs of a shift in Japanese corporate behavior, with companies increasingly inclined to pass on rising input costs to customers by raising prices. Kuroda said that "the initial conditions are crucial" when oil shocks occur. "If inflation expectations are already high and wages are rising rapidly, there is a significant risk of second-round effects." Kuroda also mentioned the role played by the weak yen in exacerbating the impact of the 2022 Russia-Ukraine conflict on Japan. "Rising energy and food prices, disruptions in the global supply chain, and the Russia-Ukraine conflict have intensified commodity pressure," Kuroda said. "For Japan, the depreciation of the yen has further amplified the rise in import prices." At the time of the comments, the yen was trading at levels far weaker than earlier in the year. On Wednesday morning in Tokyo, the exchange rate for the Japanese currency against the US dollar was around 159.22, compared to an average price of 157.59 so far in 2026. Throughout 2022, the average exchange rate of the yen against the dollar was 131.55. The currency hit its lowest level since April 30 on Tuesday, when the Japanese Ministry of Finance intervened in the foreign exchange market to support the currency.