Bank of Japan Governor Kazuo Ueda stated on Monday that Japan's economic and price developments are broadly in line with the central bank's projections, but he called for close attention to the effects of escalating Middle East conflicts.
"Due to tensions in the Middle East, global financial markets have become unstable, and crude oil prices have risen sharply. We must remain vigilant about future developments," Ueda said in a speech read by Bank of Japan Deputy Governor Ryozo Himino.
Ueda indicated that rising crude oil prices would harm Japan's economy, adding that prolonged conflict in the Middle East could affect factory output through supply chain disruptions.
He noted that while rising oil prices would push up energy costs in the short term, their impact on underlying inflation could be either upward or downward pressure.
"If the output gap widens, it may suppress underlying inflation. On the other hand, if rising crude oil prices boost public expectations for medium- to long-term inflation, it could push up underlying inflation," Ueda explained.
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