According to Stefan Angrick of Moody's Analytics, the Middle East conflict and persistently weak wage data pose a dual threat to Japan's economy. The conflict has triggered a sharp rise in commodity prices, increasing the nation's import costs, weakening its trade balance, and depressing the yen. This represents a double blow to households and businesses, worryingly echoing the inflationary shocks that followed the pandemic and the war in Ukraine. Despite record-high wage increases, salary growth has not shown resilience. He indicated that while this year's wage hikes might be similarly strong, they have not translated into broader wage growth across the economy as they have in the past. All of this has disrupted the Bank of Japan's policy path. The central bank can hold steady to cushion the economy, but at the risk of a weaker yen and heightened inflation; alternatively, it can defend the yen and curb prices, but this would come at the cost of economic damage.
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