TOKYO, April 2 - Japan’s economy could face severe supply shocks and declining demand due to the Iran war, a risk the Bank of Japan (BOJ) may be ignoring, said former central bank official Nobuyasu Atago.
Recent hawkish signals from the BOJ have led markets to expect a 70% chance of a rate hike in April. Rising oil prices from the Middle East conflict and a weak yen are increasing import costs.
Atago warned that shortages of naphtha-a key chemical used in petrochemical production-could disrupt factory output. "Just like a natural disaster, we must consider massive disruptions to goods flow," he said.
"The BOJ should focus on injecting liquidity if the economy tanks, not just raising rates," Atago added.
With the Strait of Hormuz closed to U.S.-Israeli strikes, Japan faces rising energy and chemical import costs.
Atago believes the current economic outlook may lead to stagflation this summer, with surging prices and weakening growth. He noted the BOJ may rely too heavily on macroeconomic data instead of ground-level business feedback.
"Policymakers need to listen to companies on the ground," Atago said.
The BOJ is reportedly gathering regional economic data through its branches, but Atago doubts it will sway hawkish officials.