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2026-03-09 09:51:08
[Soaring Oil Prices and Depreciating Yen Increase Japan's Risk of Stagflation] (1) Soaring oil prices coupled with a depreciating yen have increased the risk of Japan sliding into stagflation. This will prompt the government to increase fiscal spending and complicate the Bank of Japan's normalization policy. (2) "This is a double whammy for Japan," said Yuichi Kodama, chief economist at Meiji University Research Institute. "The combination of a weak yen and soaring oil prices will put heavy pressure on the Japanese economy. There is no doubt that the risk of stagflation is rising." (3) Kodama emphasized that the impact depends entirely on how long the high oil prices can last. He said that if oil prices continue to soar, Japanese Prime Minister Sanae Takaichi will certainly need to consider a new economic plan. Further increases in spending could again trigger investor concerns about Japan's long-term fiscal situation—concerns that triggered a sharp sell-off in the bond market in January. (4) Kodama expects the current economic and market environment to prompt the Bank of Japan to temporarily refrain from raising interest rates, as officials need to assess the potentially significant impact of the conflict with Iran.
