Mizuho Securities: Oil Price Shock Puts Bank of Japan in Policy Dilemma

Mizuho Securities' Vishnu Varathan stated that the Bank of Japan is expected to maintain its current policy stance this week, as the oil price shock triggered by the Middle East conflict may both dampen demand and exacerbate existing inflation risks. The central bank faces a difficult situation, as it remains unclear which risk will dominate and what corresponding measures should be taken. Inflation, which was already elevated before the Middle East crisis, combined with significant pressure from the yen's depreciation, limits the Bank of Japan's ability to ease policy preemptively to counter potential growth shocks. At the same time, the central bank cannot raise interest rates too quickly or sharply, as doing so could undermine the prospects for achieving sustainable and healthy reflation.