Kazuo Ueda: Oil price shocks, inflation, and monetary policy in Japan
Opening remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the 2026 Bank of Japan-Institute for Monetary and Economic Studies Conference "Monetary policy from new perspectives", hosted by IMES, Tokyo, 27 May 2026.
We are pleased to welcome all of you, distinguished speakers and guests, to the 2026 BOJ IMES Conference. Thank you very much for your participation.
The theme of this year's conference is "Monetary Policy from New Perspectives." I am sure that supply shocks loom large in everyone's mind. They are not a new phenomenon but at least have become more frequent. Whether a new perspective is truly needed, I leave it for debate - but revisiting past experience is, I think, an indispensable starting point.
I do not have a new perspective to offer at this point. Instead, let me go through Japan's experience with major energy shocks during the last five decades and offer some food for discussion.
Since the 1970s, the global economy has been hit by significant spikes in energy prices, especially oil prices, as shown in Chart 1. There are five notable incidents: the first oil shock of 1973, the second oil shock of 1979, the oil price surge of the mid-2000s leading to the 2008 Great Financial Crisis, Russia's invasion of Ukraine in 2022, and the recent conflict in the Middle East.
However, the response of Japan's consumer price index (CPI) to oil price increases was different from episode to episode, to which I now turn.
Let me begin with the first oil shock. The first oil shock came in late 1973. In Chart 2 we can detect a typical wage-price spiral in 1974, with both reaching about the 20-30% range. But Japan's inflation problem had started before that. Inflation was already close to 10% in early 1973, and wage growth was close to 20%. It was already an economy with significant inflationary momentum.