Speaking at the BOJ-IMES Conference on May 27, Ueda told an audience that included senior officials from the IMF, Federal Reserve Bank of Dallas, Reserve Bank of Australia, and Bangko Sentral ng Pilipinas that cost shocks can feed permanently into prices if wages, inflation expectations, demand conditions, and exchange rates move in the wrong direction simultaneously.

"A temporary shock can become permanent if those channels activate," he said.

The two-day conference, themed "Monetary Policy from New Perspectives," is taking place against a severe geopolitical backdrop. A U.S.-Israeli strike on Iran on February 28, 2026 killed Supreme Leader Ayatollah Ali Khamenei, triggering retaliatory action that effectively closed the Strait of Hormuz, the waterway through which roughly 20 percent of global oil and LNG supply passes.

For Japan, the exposure is acute: approximately 93 percent of its oil imports transit that route. Brent crude surged past $110 per barrel by end-March, more than 50 percent above January 2026 levels, while Asian LNG spot prices roughly doubled.

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Five Episodes, One Warning

Ueda structured his opening remarks around a comparison of five major oil price episodes dating back to 1973. His central argument is that identical supply shocks produce very different inflation outcomes depending on the monetary regime in place at the time. In 1973, with Japanese wages already growing near 20 percent annually and monetary tightening delayed, a wage-price spiral took hold. By 1979, faster policy response, prior yen appreciation, and the fact that firms had internalised the lessons of 1973 helped Japan avoid a repeat.

Through the mid-2000s, Japan's deflationary equilibrium meant energy cost increases were absorbed like an income tax, with no second-round price effects. The post-2021 shock, a broader wave encompassing energy, food, logistics, and yen depreciation, finally pushed Japan out of deflation without triggering 1970s-style dynamics.

Now, Ueda says, conditions have changed enough that the calculus is genuinely uncertain. Japan's medium-to-long-term inflation expectations have shifted to a range of 1.5 to 2 percent, up from near-zero. That shift means cost shocks carry materially more risk of embedding into wages and prices than they did during the mid-2000s deflationary era.

Ueda said Japan now faces "exactly the right question to be debating: which inflation regime the country currently inhabits."

The BOJ held its policy rate at 0.75 percent at its April 28 meeting, with an 8-1 vote to stay put. That rate, the highest in nearly three decades, reflects a cautious exit from decades of ultra-loose policy. A stagflationary scenario, where energy import costs simultaneously drag growth and push prices higher, limits the BOJ's room to act in either direction.

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Carry Trade Overhang for Crypto Markets

The BOJ's normalisation path carries direct implications for global crypto markets, even though Ueda made no mention of digital assets in his remarks. For years, institutional investors borrowed yen at near-zero rates and deployed capital into higher-yielding assets including Bitcoin and Ethereum, a strategy known as the yen carry trade. As rates move higher, that trade becomes less attractive and borrowed positions can unwind quickly during volatility spikes. U.S. spot Bitcoin ETFs have recorded cumulative inflows exceeding $21 billion since Q3 2025, amid a period of elevated yen-carry-funded risk appetite.

A disorderly unwind would disproportionately affect retail holders in emerging markets who entered leveraged positions during the low-rate era.

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Stablecoin Demand Rising in Energy-Stressed Economies

The regional effects of the oil shock are already visible in on-chain behaviour. Pakistan and Bangladesh share the sharpest South Asian exposure, each holding thin foreign reserves and negligible strategic petroleum stockpiles. Pakistan has responded with a four-day government workweek, school closures, and a 50 percent work-from-home policy to reduce fuel consumption.

The rupee faces renewed depreciation pressure. On-chain data tracked by InvestingLive shows that demand for dollar-pegged stablecoins such as USDT and USDC is currently elevated in Pakistan, with residents actively seeking local currency hedges during the ongoing macro stress.

Sub-Saharan Africa faces a compounding squeeze from oil costs and rising fertiliser prices, with fertiliser up 31 percent and urea up 60 percent according to the World Bank Commodity Markets Outlook (April 2026). The World Bank estimates up to 45 million additional people could face acute food insecurity if the conflict persists. Peer-to-peer crypto trading volumes in the region have historically spiked during currency devaluation cycles, including documented stress periods involving the Nigerian naira, Ghanaian cedi, and Kenyan shilling, according to Chainalysis's Global Crypto Adoption Index.

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Digital Yen Decision Looms

Separate from the conference proceedings, the BOJ is running a retail digital yen pilot alongside a blockchain settlement sandbox and is participating in Project Agorá, a multi-central-bank initiative involving the BIS, Federal Reserve, ECB, and BOJ, among others, to tokenise wholesale central bank deposits for cross-border payments.

A decision on whether to issue a retail digital yen in 2026 remains pending. Ueda has said the BOJ intends to "conduct technical experimentation on settlement using central bank money in the form of current account deposits on a system that uses blockchains." If the digital yen moves forward, analysts suggest it could set the baseline architecture for Japan's broader tokenised finance infrastructure, with potential knock-on effects for remittance corridors connecting Japan to South Asia and Africa.

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The conference concludes on May 28. The Mayekawa Lecture was delivered by Donald Kohn of the Brookings Institution and chaired by Neel Kashkari of the Minneapolis Fed, linking the programme to active Federal Reserve policy debates. Finance Minister Satsuki Katayama has separately indicated that yen intervention remains an option, citing "significant volatility" in currency markets since the Hormuz closure, with the yen having weakened to levels not seen in approximately 20 months.