Junko Koeda: Economic activity, prices, and monetary policy in Japan
Speech by Ms Junko Koeda, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Fukuoka, 21 May 2026.
I. Current Situation and Outlook for Economic Activity and Prices
When considering the current situation and outlook for economic activity and prices, this time I believe it is necessary to address the geopolitical risks related to the situation in the Middle East, which materialized this spring. Please refer to the geopolitical risk index in the left panel of Chart 1. Generated through text analysis of newspaper articles, this index has risen to a level comparable to its level during the Ukraine crisis in 2022, reflecting the risks surrounding the current situation in the Middle East.
In response to the situation in the Middle East, Dubai crude oil prices, i.e., the spot prices at which crude oil from the Middle East is actually traded, have risen more than they did during the Ukraine crisis, as shown in the right panel of Chart 1. Global food prices, also shown in the right panel of Chart 1, are currently relatively stable; however, they could be affected by factors such as a surge in the price of some fertilizers that are mainly produced in the Middle East.
Japan relies on overseas sources for energy and food, and being an island nation, most imports by volume depend on sea transport. For a country like Japan that is highly dependent on energy imports, the current situation in the Middle East may be interpreted as a negative supply shock accompanied by soaring crude oil prices, and it is natural to think that this shock will weaken economic activity while pushing up prices.