Bank of Japan rate hike timeline clouded by Iran conflict, says Nomura analyst

Japan’s central bank is stuck between two bad options. Raise interest rates to fight inflation and risk choking an already fragile economy, or hold steady and watch prices climb higher as the Iran conflict sends oil costs soaring.

Nomura analyst Mari Iwashita says the ongoing conflict makes it significantly harder for the Bank of Japan to nail down a timeline for its next rate hike. Markets had been pricing in a move as early as June or July, but that window is looking increasingly uncertain.

The numbers behind the squeeze

Here’s the thing about Japan: it imports nearly all of its energy. That makes it uniquely vulnerable when conflict threatens key oil transit routes like the Strait of Hormuz.

Nomura’s projections paint a clear picture of the damage. The firm estimates the Iran conflict could shave 0.18 percentage points off Japan’s real GDP while pushing inflation up by 0.31 percentage points.

The BOJ itself seems to agree that things are getting complicated. At both its March and April meetings, the central bank held its short-term policy rate at 0.75%. The April vote was 6-3, with three dissenting members pushing for a hike to 1.0%.

Perhaps most telling: the BOJ revised its core inflation forecast for fiscal year 2026 upward from 1.9% to 2.8%. That’s not a minor adjustment. It’s an acknowledgment that oil-driven price pressures are reshaping the inflation outlook in ways the bank didn’t anticipate just months ago.

Oxford Economics now suggests July as the earliest realistic window for a rate hike, a shift from earlier expectations that June was firmly on the table.

Why this is a classic central banking dilemma

Iwashita’s analysis at Nomura captures this tension. The BOJ remains committed to tightening monetary policy over the longer term. The question is purely about timing, and the Iran conflict has made that timing calculation exponentially harder.

The three dissenters at the April meeting clearly believe the bank should act now, arguing that inflation running nearly a full percentage point above the original forecast justifies immediate action. The majority disagreed, opting for caution in the face of geopolitical uncertainty.

What this means for crypto investors

The yen carry trade, where investors borrow cheaply in yen and park the money in higher-yielding assets, has been one of the quieter but more persistent drivers of risk-asset flows for years. When the BOJ moves slowly on rate hikes, it keeps the yen relatively weak and borrowing costs low, supporting carry trades into riskier assets including crypto.

The cautious tone from the BOJ has already created what some analysts describe as favorable conditions for risk assets. An aggressive, surprise rate hike, by contrast, would be exactly the kind of shock that forces leveraged positions to close quickly and painfully.

The risk cuts both ways, though. The 6-3 vote split at the April meeting shows the bank is closer to acting than the headline rate suggests. Crypto investors riding the assumption of continued dovishness should keep one eye on crude oil prices and the other on the Strait of Hormuz.