As of May 27, 2026, Bank of Japan Governor Kazuo Ueda warned that central banks should not look at oil prices in isolation because energy price shocks initially viewed as temporary can become persistent sources of inflation if they define pricing-setting, household inflation expectations, and wage negotiations. [1] In a speech analyzing historical oil shocks, he argued that the economic effects of energy disruptions depend heavily on the surrounding inflation environment and policy response. He asserted that when inflation expectations are already high and wages are accelerating, the risk of second-round effects is large. While some oil shocks produced only temporary inflationary spikes, others generated prolonged inflation when second-round effects spread through the broader economy. Ueda emphasized that central banks must closely monitor whether firms and households begin to expect sustained inflation rather than treating energy-driven price increases as isolated events. The remarks come as surging oil prices from the Middle East conflict add to inflationary pressure in Japan’s economy, prompting the bank to emphasize the signals that lead markets to expect an interest rate hike as early as within a month.

[1] https://www.boj.or.jp/en/about/press/koen_2026/data/ko260527a1.pdf