Moody's: Middle East conflict intensifies, Bank of Japan returns to its original stance

Stefan Angrick of Moody's Analytics said that the conflicts in the Middle East and ongoing weak wage data pose a dual threat to the Japanese economy. This conflict has led to a surge in commodity prices, increasing the country's import costs, weakening trade balance, and the yen. This is a double blow to households and businesses, worryingly echoing the inflation shock after the pandemic and the war in Ukraine. Although wages have seen record increases, wage growth has not shown resilience. He stated that although this year's wage growth may be equally strong, it has not translated into overall wage growth for the economy as in the past. All of this disrupts the path of the Bank of Japan. The Bank of Japan can stand still to cushion the economy, but at the risk of a weaker yen and worsening inflation; or it can defend the yen and curb prices, but that would result in economic losses.