- Lead. The US-Iran ceasefire announced June 14 removes the war premium that has been the dominant driver of global inflation since February, forcing a rapid reassessment at central banks meeting this week.
- Fact. The Bank of Japan is expected to raise its policy rate to 1% on June 16 — the highest level since 1995 — in a decision shaped by months of energy-driven price pressure that may now be easing faster than anticipated.
- Stake. The US Federal Reserve’s first rate decision under Chair Kevin Warsh follows on June 17; markets had been pricing in a hike on the back of wartime energy costs, but the reopening of the Strait of Hormuz introduces a new deflationary variable at the worst possible moment for forward guidance.
For most of 2026, the answer to “why is inflation still rising?” has been the same: the Strait of Hormuz. The war that began in February drove energy prices sharply higher, and that single variable — documented in June economic outlooks as generating a squeeze on household purchasing power across advanced economies — pulled central banks toward tightening cycles they had largely completed. The European Central Bank reversed course and raised rates to 2.25% in June, its first hike since 2023. Federal Reserve minutes through the spring revealed growing internal concern that wartime inflation required higher borrowing costs, and markets priced in a Fed hike for the first time this cycle.
Then, on June 14, President Trump declared the Iran deal “now complete” and told ships to start their engines. The Strait of Hormuz will reopen for toll-free commercial shipping. If sustained, that means the energy shock that has been the principal inflationary variable for four months begins to unwind.
The BOJ’s uncomfortable position
Japan’s central bank meets on June 16. Analysts have widely expected a rate increase to 1%, a level last seen in Japan in 1995, as rising import costs — amplified by a weak yen and elevated energy prices — pushed inflation outside the band the BOJ had been managing. That logic rested on a global energy environment shaped by Hormuz disruption. With the deal announced 48 hours before the decision, policymakers in Tokyo face the awkward task of delivering what markets had priced in while acknowledging that the underlying conditions may be shifting beneath them.
The BOJ cannot wait for the oil market to settle; its communication schedule does not allow for a delay. What it can do is alter its forward guidance — the language about future meetings — to signal that the pace of any further tightening will depend on whether the energy disinflation from Hormuz’s reopening proves durable or short-lived.
The Fed’s first decision under Warsh
The Federal Open Market Committee meets on June 17 under Kevin Warsh, who chairs his debut FOMC having inherited a committee that was leaning toward a rate increase. The same logic applies: the case for a hike was built on energy-driven inflation that may now reverse. The Fed faces a communication problem of its own. If it hikes on June 17 on the basis of data that predates the Iran deal, it risks tightening into an easing energy shock. If it holds, it may appear to be reacting to geopolitical news rather than economic data — precisely the perception a new Fed chair wants to avoid establishing in his first meeting.
Neither institution has an easy path. What the Iran deal has done is introduce a legitimate new variable — the pace of oil price normalisation — into decisions that had seemed, until June 14, to be all but settled.