The Bank of Japan has decided to keep its interest rate unchanged at 0.75%, which was in line with expectations. However, it warned that inflation risks are increasing, mainly due to the ongoing conflict involving Iran.
The decision was not unanimous, with eight out of nine board members supporting the move to hold rates steady.
In its statement, the central bank said inflation may fall below 2% for a short period, but rising crude oil prices linked to tensions in the Middle East are likely to push prices higher again.
Japan is feeling the impact of the conflict because it depends heavily on the region for energy, importing about 95% of its needs from there.
To manage the situation, the government has started using its crude oil reserves. Prime Minister Sanae Takaichi also said efforts are being made to keep gasoline prices stable, targeting an average of around 170 yen per liter across the country.