Signs of Iran Conflict Impacting Japan GDP and BOJ Policy

Japan's 1Q 2026 GDP grew 0.5% QoQ, though the Iran conflict is starting to hurt terms of trade via energy prices and yen weakness. BOJ Governor Ueda's monitoring of inflation expectations suggests the central bank remains on track for rate normalization.

Key Takeaways

• 1.Japan's 1Q 2026 real GDP grew +0.5% QoQ, marking a second straight quarter of expansion despite emerging impacts from the Iran conflict.
• 2.The Iran conflict is causing a deterioration in Japan's terms of trade due to yen depreciation and rising energy prices, which may pressure real wages.
• 3.BOJ Governor Ueda noted quick price pass-through and is monitoring breakeven inflation rates, keeping a potential June rate hike on the table.

Table of Contents

• Some signs in the 1Q GDP data of the Iran situation already impacting the domestic economy / Latest comments by BOJ Governor Ueda
• How might BOJ monetary policy be influenced by evidence in the 1Q GDP statistics that the Iran situation has already started to impact the domestic economy?
• The government's take on the GDP numbers, the Domar condition, and a FY2026 supplementary budget

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