BOJ under pressure to hike as oil shock strengthens yen

Bank of Japan minutes and a Summary of Opinions released in May show several board members prepared to raise interest rates quickly if elevated oil prices tied to the Iran conflict continue to feed broader inflation. Barclays Fixed Income, Forex and Commodities Research and overnight index swap markets price about a 74% probability of a rate increase at the June meeting.

The March meeting minutes, published May 7, and the April Summary of Opinions, released May 11, record multiple officials urging faster tightening if oil-driven price pressures remain. At the April 27-28 policy meeting the BOJ left its policy rate at 0.75% on a 6-3 vote. Board members Hajime Takata, Naoki Tamura and Junko Nakagawa pushed for an immediate rise to 1.0%. The minutes include comments such as ‘without long intervals,’ ‘without hesitation,’ and that the bank should ‘act decisively’ on further increases if price pressures intensify.

Officials revised projections as part of the reassessment. The BOJ raised its fiscal 2026 inflation forecast to 2.8% from 1.9% and trimmed its growth forecast to 0.5% from 1.0%. The central bank projects core inflation near 3% for two consecutive years if oil prices and yen weakness persist.

The reassessment reflects higher crude prices linked to the conflict involving Iran, which raised import costs for Japan. A weaker yen makes imported energy more expensive. The minutes note the bank ‘might unintentionally fall behind the curve’ as the effects of yen depreciation increase. Japan intervened in currency markets in early May to support the yen against the dollar, while analysts remain divided on whether intervention will have lasting impact given strong demand for dollars to buy oil.

Governor Kazuo Ueda has signaled readiness to continue raising rates as economic activity and inflation strengthen. Market participants point to a clear historical link between BOJ tightening and volatility in cryptocurrency markets: each BOJ rate hike since 2024 coincided with sharp Bitcoin declines. The July 31, 2024 move to 0.25% corresponded with the yen strengthening from about 160 to below 140 per dollar and Bitcoin falling from roughly $65,000 to $50,000 over a week, a 23% drop. The January 2025 increase to 0.50% coincided with a further 25%–31% decline in Bitcoin over about 20 days. Traders attribute those moves to the unwinding of yen carry trade positions and forced liquidations of leveraged crypto holdings linked to the yen.

Market participants describe the June meeting as the clearest near-term test of whether the BOJ will follow through on the hawkish language recorded in the minutes and summaries. Swap markets price a June hike at about 74%. Past rate increases have coincided with yen appreciation and falls in Bitcoin. The Iran conflict remains the primary factor driving the energy shock cited in BOJ deliberations.