Japan PM Takaichi Calls for Extra Budget to Offset Rising Middle East Commodity Prices

Japanese Prime Minister Sanae Takaichi has called on the finance ministry to prepare an extra budget to cushion the economy from rising commodity prices linked to the Middle East conflict, a shift from her earlier insistence that no supplemental spending was needed. The move underscores growing concern in Tokyo that higher energy and import costs could filter through to businesses and households just as inflation pressures remain elevated.

According to Bloomberg, Takaichi said the government must respond to the shock from the conflict, which has helped push up oil prices and raised the risk of another round of price increases in Japan. An extra budget would give the government room to provide aid or other support measures, though officials have not yet detailed what form that spending could take. The decision signals that policymakers are becoming more cautious about the economic fallout from external shocks.

The discussion comes as Japanese markets are already reacting sharply to the prospect of more persistent inflation. Strategists cited by Bloomberg said Japanese government bonds sold off on Monday, sending yields to record highs as investors weighed the effect of rising oil prices and the possibility that the Bank of Japan may continue normalizing policy. Higher yields can make borrowing more expensive for the government and can also influence corporate financing costs.

At the same time, market expectations for higher rates have been firming. A report in The Japan Times said the Bank of Japan has been signaling the possibility of a rate hike as soon as June, with some board members warning that inflation risks from the Middle East could justify tightening even if the situation remains uncertain. The April policy meeting ended in an unusually split 6-3 vote to keep rates unchanged, suggesting mounting momentum inside the central bank for a move at the next meeting.

That backdrop helps explain why Takaichi’s budget plan matters beyond immediate relief. If energy and commodity prices keep climbing, the government could face pressure to support consumers while the central bank simultaneously leans toward higher interest rates. That combination would test Japan’s ability to manage inflation without weakening growth, especially for firms and households already facing higher input and living costs.

Investors are also watching whether the BOJ will follow through on expectations for further tightening. In a Bloomberg interview, Carlyle Japan’s Takaomi Tomioka said he expects the central bank to raise rates by 25 basis points twice this year, reflecting a broader view in markets that Japan is entering a more active phase of monetary normalization. For now, the immediate focus is on how much fiscal help the government plans to offer and whether the Middle East-driven shock will deepen Japan’s inflation challenge.