MUFG Says Bank of Japan Still on Track to Hike Rates

07:33 AM EST, 03/05/2026 (MT Newswires) -- The yen (JPY) has held up relatively well so far in response to the energy price shock triggered by the conflict in the Middle East, said MUFG.

The yen has been the third-best-performing G10 currency after the US (USD) and Canadian (CAD or loonie) dollars since the end of last week, wrote the bank in a note to clients.

The yen has been supported overnight Wednesday by a Bloomberg report stating that Bank of Japan officials are still on track to raise interest rates, with the possibility of an April hike not ruled out, according to people familiar with the matter. The report supports Japanese rate market pricing, which is still discounting around 16bps of hikes by April.

The report adds that BoJ officials haven't altered their stance of proceeding with rate increases if the economic outlook evolves as expected.

However, the report did indicate that BoJ officials will continue to monitor the implications of developments in the Middle East. Officials view the duration of the conflict as the key variable in assessing the risks to Japan's economic outlook and the trajectory of interest rates.

The BoJ will pay close attention to upside risks stemming from higher oil prices. If crude prices remain elevated amid prolonged tensions in the Middle East, that could push up inflation expectations and reinforce price momentum.

It follows comments on Wednesday from BoJ Governor Kazuo Ueda, who expressed concern that Japan's economy would be hit by higher energy prices.

MUFG has been assuming that a more prolonged conflict would make the BoJ become cautious over hiking rates further in the near-term, encouraging a weaker yen alongside the negative impact on the yen from the terms of trade shock for Japan's economy from higher energy prices.

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