Escalating military strikes by the United States and Israel against Iran, coupled with disruptions to shipping through the Strait of Hormuz, have intensified concerns in Japan about a prolonged conflict in the Middle East. Media and experts within Japan suggest that the nation's economy, which is highly dependent on oil imports from the Middle East, could suffer significant damage. In a worst-case scenario, economic growth could approach a standstill.
According to data from Japan's Ministry of Economy, Trade and Industry, the nation's reliance on Middle Eastern oil remained as high as 95.1% as of January this year, with the vast majority of these imports needing to transit the Strait of Hormuz. Given Iran's announcement of a ban on navigation through the strait, a protracted situation would have a massive impact on global energy transportation. Even with its strategic petroleum reserves, Japan faces substantial supply risks.
Experts believe that even if crude oil supplies are not completely cut off, an escalation of the conflict will lead to a sharp spike in international crude oil prices. This would inevitably drive up domestic gasoline prices in Japan, further fueling the existing trend of rising domestic prices. Additionally, higher international oil prices could amplify market concerns about a worsening Japanese trade balance, exacerbating yen depreciation and consequently pushing up import costs even more.
Market analysts indicate that the US-Israel attacks on Iran have triggered a risk-off mode in Japanese markets. The Tokyo stock market has experienced a significant decline for three consecutive trading days since the 1st, with the Nikkei Stock Average plunging more than 4,600 points over this period, a drop of 7.8%. Leading semiconductor stocks, along with shares related to exports and domestic demand, were broadly sold off. Fumio Matsumoto, chief strategist at Okasan Securities, stated that markets are likely to remain highly volatile, noting that investors who initially anticipated a short-lived conflict are now having to revise their optimistic expectations.
Since 2022, persistent yen depreciation and rising prices of imported goods have led to consecutive years of price increases in Japan. Data from the Ministry of Internal Affairs and Communications shows that as of January, Japan's core Consumer Price Index (CPI) had risen year-on-year for 53 consecutive months. The CPI increased by 3.1% in 2025, marking the fourth consecutive year it has exceeded the 2% target set by the Japanese government and the central bank.
Hideo Kumano, chief economist at Dai-ichi Life Research Institute, suggested that considering a US airstrike on Iran in June of last year caused international oil prices to surge by 20%, this round of conflict could potentially drive prices up by approximately 35%, to around $90 per barrel. This would impact prices of essentials in Japan, such as gasoline and electricity bills. Japan's core CPI (excluding fresh food) could be pushed up by 0.5 percentage points. The effectiveness of price measures introduced by Prime Minister Sanae Takaichi could be halved by the surge in crude oil prices.
Nobuhide Kiuchi, an economist at Nomura Research Institute, predicted that in a worst-case scenario, Japan's inflation rate could be boosted by 1.14 percentage points. Media and experts believe that surging oil prices will further stoke inflation, potentially dashing the government's hope for real wages to turn positive within 2026. Personal consumption, which accounts for more than half of Japan's economy, could continue to languish.
Taro Saito, head of economic research at NLI Research Institute, forecasted that if the war reaches a stalemate, crude oil prices could climb even higher. Should oil prices exceed $100 per barrel, Japan's real economic growth rate could decline by 0.31 percentage points. Nobuhide Kiuchi added that as the Middle East conflict persists, international oil prices may rise further, increasing downside risks for both the Japanese and global economies. In an extreme scenario involving a long-term blockade of the Strait of Hormuz, oil prices could reach around $140 per barrel, potentially dragging Japan's economic growth down by 0.65 percentage points.
Prior to factoring in geopolitical conflicts such as the US-Israel attacks on Iran, Mitsubishi Research Institute had projected Japan's economic growth for fiscal year 2026 (April 2026 to March 2027) to reach 0.9%. This implies that, in a worst-case scenario, the Middle East situation could reduce Japan's economic growth to a level nearing stagnation.
