Bank of Japan Governor Kazuo Ueda has issued a stark warning that temporary oil price shocks risk becoming embedded as persistent inflation drivers, complicating the central bank's delicate path toward policy normalisation. Speaking during a parliamentary session on May 27, Ueda acknowledged that volatile global crude prices inject fresh uncertainty, and if energy costs remain elevated, higher inflation expectations could entrench themselves through pricing behavior and wages. “If temporary shocks persist, they can become entrenched through expectations and pricing behavior,” Ueda stated, signaling that the BoJ is carefully monitoring spillover into broader demand.
The remarks come as the yen's brief rescue rally fades and the powerful carry trade reasserts control. The yen's recent short-covering bounce, triggered by intervention threats, has given way to renewed selling as the wide interest rate gap between the BoJ and the Federal Reserve persists. With the BoJ maintaining ultra-loose policy and the Fed keeping rates elevated, the yield differential heavily favors borrowing yen cheaply to buy higher-return assets. Analysts say this fundamental math overrides tactical interventions, keeping the yen structurally weak and risk appetite relatively intact. Ueda's oil warning adds another layer: if the BoJ is forced to accelerate rate hikes due to persistent energy-driven inflation, the carry trade dynamics could shift abruptly, triggering volatility across risk assets including cryptocurrencies.
