Oil Price Surge... Japan's Takaichi Faces Economic Test

Foreign media have analyzed that Japanese Prime Minister Sanae Takaichi could face an economic test due to rising international oil prices. If oil prices continue to rise, Japan's economic growth rate could fall into negative territory, leading to an economic recession.

Yonhap News Agency

The Financial Times (FT) published an article on March 10 (local time) titled "Oil price surge puts Sanae Takaichi's honeymoon at risk."

The FT reported that the Iran war has starkly exposed Japan’s vulnerability in energy imports—especially its heavy dependence on the Middle East—and to disruptions in the energy market. Analysts pointed out that if turmoil in the energy market persists and coincides with a weak yen, consumer prices could rise rapidly. Takahide Kiuchi, an economist at Nomura Research Institute, warned, "If oil prices continue to rise, there is a risk of stagflation in Japan."

The FT also noted that this situation has arisen at a critical moment for Prime Minister Takaichi. She won the election on a pledge to ease the burden caused by rising food prices. However, she now faces the challenge of supporting households amid soaring energy costs. In recent parliamentary remarks, Prime Minister Takaichi said she was considering tapping into oil reserves to ensure gasoline prices do not rise to levels that are "unbearable for households."

The analysis also suggested that persistently high oil prices could put pressure on the Bank of Japan (BOJ) as it weighs the timing of its next policy rate hike. Stefan Angrick, the chief economist for Japan at Moody’s Analytics, commented, "Japan's economy is not exactly stagnant, but it is not growing rapidly either," adding, "It would not take much of a shock for gross domestic product (GDP) to decline for two consecutive quarters."

In particular, it is expected that if international oil prices stay above $100 per barrel for an extended period, there will be a negative impact on economic growth. Economist Kiuchi estimated that if oil remains around $110 per barrel for a year, Japan’s GDP growth rate could fall by 0.39 percentage points. He also warned, "If oil prices reach around $140 per barrel, Japan would reach a tipping point where growth could turn negative."

Yen weakness is also cited as a major concern. While the BOJ is set to hold its monetary policy meeting soon, not many analysts are expecting a rate hike under current circumstances. However, ongoing depreciation pressures on the yen are making policy decisions increasingly difficult.

Some economists argue that import-driven inflation stemming from higher energy costs could delay a BOJ rate increase. On the other hand, some analysts point out that robust capital investment by companies responding to labor shortages still leaves room for at least one rate hike by the BOJ before summer.

In addition, the exchange rate has been identified as a key variable. Hiroshi Shiraishi, an economist at BNP Paribas covering Japan, said, "It is a situation where you have to choose between the outlook for economic growth and the need to defend the currency." He added that while the BOJ may prefer to temporarily pause its rate normalization cycle, if the cost of living continues to rise, Prime Minister Takaichi may respond by expanding government spending or subsidy policies.

This content was produced with the assistance of AI translation services.