Japan wanted inflation and Iran war could grant that wish. But it's not the type Tokyo desires

The Bank of Japan has long stated that sustained levels of inflation will help it move ahead with policy normalization, after having ended the world's only negative interest rate regime in 2024. Headline inflation in Japan has run above the BOJ's 2% target for 45 straight months, only cooling in January 2026. And now the war in the Middle East risks fueling it further, something that the central bank flagged when it kept rates steady on Thursday. For Japan, a country that imports nearly all of its oil, this is the wrong kind of "cost‑push" inflation, rather than the "demand‑pull" rise in prices the BOJ has been seeking. "Cost-push" inflation refers to increase in prices due to external factors, instead of an rise in domestic spending power. Meanwhile, Iran has threatened to escalate tensions until oil reaches "$200 per barrel." Making matters worse is that these supply-side inflation risks come against the backdrop of an extended slide in wages in the country. Real wages fell every month in 2025, before gaining 1.4% in January. The BOJ has been looking for inflation fueled by wage growth — a virtuous cycle of price and wage increases. Prime Minister Sanae Takaichi reportedly has also urged the BOJ to ensure that its inflation target is met, not by rising raw material costs, but wage increases. Thomas Rupf, chief investment officer for Asia at private bank VP Bank, told CNBC that inflation is expected to increase noticeably from March onward. "Higher global energy prices following the conflict, combined with Japan's heavy reliance on imported energy and a weaker yen, will likely pass through quickly to consumer prices." Inflation could rebound beyond 2%, Rupf added. On Tuesday, Ueda also said underlying inflation in Japan was accelerating toward the bank's 2% target, reiterating that price rises must be matched by solid wage gains. Earlier this month, he had reportedly told Japan's parliament that rising crude oil prices would worsen Japan's terms of trade and hurt t...