Japan's central bank sought inflation through wage growth, but geopolitical tensions threaten a different scenario. The Iran conflict risks triggering cost-push inflation via surging energy prices rather than the demand-driven wage increases the Bank of Japan actually wants. Analysts estimate oil spikes could add 0.3 to 0.7 percent to consumer prices, with broader ripple effects across production costs. This creates a policy dilemma for the BOJ, forcing it to choose between raising rates to combat inflation or holding steady to support economic growth. Complicating matters further, Japan's real wages fell throughout 2025 before gaining only 1.4 percent in January, undermining the wage-driven inflation cycle policymakers desire.
