Iran War Inflation Is Hitting Japan Faster than Previous Oil Shocks
Japan is feeling the Iran-war oil shock much faster than in previous crises. Sharp moves in fuel and power prices drove April consumer inflation to 3.2% year-on-year. A weak yen is enlarging imported energy costs and lifting pressure on the Bank of Japan to raise rates.
According to Nikkei Asia's analysis, the energy shock from the Iran war has passed through to Japanese consumer prices much faster than during the 1973 and 1979 oil crises. April headline consumer inflation reached 3.2% year-on-year, with transport and energy components climbing above 8%. Real household spending fell for a second straight month.
Analysts stress that, unlike previous shocks, Japan now relies heavily on imported liquefied natural gas and crude oil. With the yen sliding to 162 against the dollar, the cost of imported energy has risen aggressively. Margins at industrial firms once considered resilient have quickly come under pressure.
Markets are pricing the chance of an additional 25 basis-point rate increase by the Bank of Japan within the year. Prime Minister Sanae Takaichi is expected to announce a supplementary budget package to support household spending, while the Ministry of Finance is reported to be preparing energy subsidy measures.
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