IMF urges BOJ to keep raising rates as Middle East war adds new risks

The International Monetary Fund is urging the Bank of Japan to keep raising interest rates gradually, even as the war in the Middle East adds fresh risks to Japan’s outlook.

In its April 2026 Article IV consultation with Japan, the IMF said monetary accommodation is appropriately being withdrawn and that gradual rate hikes should continue until policy moves toward a neutral setting. The fund also warned that the conflict in the Middle East poses significant new risks.

Reuters reported the same message on April 4, saying the IMF wants the BOJ to continue tightening despite the uncertainty created by the Iran war. The report lands at a sensitive time for Japanese policymakers, who are still managing inflation, weak external demand and the possible spillover from higher energy prices.

The IMF said Japan’s growth is likely to moderate in 2026, partly because of weaker global demand and the effect of the conflict. That leaves the BOJ balancing two competing pressures: the case for further normalization after years of ultra-loose policy, and the risk that geopolitical shocks could slow the economy.

The BOJ is scheduled to hold its next major policy meeting on April 27-28. Officials have previously said rate hikes will continue if the economic outlook develops as expected, but they have also emphasized that policy normalization will be gradual.

For now, the IMF’s message is straightforward: keep tightening, but do so carefully as the external backdrop worsens.