I. Prices
The Iran Situation
Before beginning my speech, I would like to offer my heartfelt sympathies to those who are suffering from the recent heavy rain.
A little over a year has passed since I was appointed as a member of the Policy Board. During this time, the whole world has wrestled with two major issues related to the United States: one concerning tariffs and the other concerning the Iran situation.
The tariff issue, unexpectedly, did not cause any economic disruption in Japan, although it did impact primarily sectors that have high export volumes to the United States, such as automobiles. In contrast, the Iran situation has had far broader repercussions. The supply of crude oil and other materials has tightened due to the closure of the Strait of Hormuz. This could induce both a rise in inflation and a deceleration in economic activity, placing central banks worldwide in a difficult decision-making environment.
In terms of the impact on Japan, crude oil and liquefied natural gas (LNG) have shown different price dynamics. Crude oil prices have risen due to a shortage of supply, whereas LNG prices have increased even without such a shortage. Chart 1 presents price developments in crude oil and LNG.
In the case of crude oil, Japan recently faced a situation in which slightly more than 70 percent of its crude oil imports passed through the Strait of Hormuz. There were greater concerns over a tightening in the supply of chemicals than over a shortage of transportation fuel derived from crude oil -- such as gasoline and light oil. Given the fact that plastic products have become widespread over the past 50 years, there is a possibility that the impact of the shortage of crude oil has become more serious than it was during the oil shocks in the 1970s. At the moment, though, the necessary amount of the supply of transportation fuel and chemicals has been maintained, albeit with significantly higher prices, through the release of national reserves and alternative procurement of crude oil and other materials.