Japan faces risks from Iran conflict that complicates BOJ rate path

 Japan faces risks of low growth and high inflation if a prolonged Middle East conflict keeps oil prices elevated and hits the import-reliant economy, analysts say, complicating the central bank's efforts to push up still-low interest rates.

Bank of Japan Deputy Governor Ryozo Himino said on Monday the central bank will keep raising interest rates, but offered no clear signs on how soon the next hike could come.

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"Even if market volatility is high or when there's uncertainty, we need to decide what's necessary," Himino told a news briefing, playing down the view market turbulence alone would be enough reason to delay a rate hike.

Oil prices surged as much as 13% on Monday as Iran and Israel stepped up attacks in the Middle East, disrupting shipments from the key producing region in a blow to Japan that imports over 90% of its crude oil from the Middle East.

The yen weakened 0.6% to 156.95 per dollar, edging closer to the psychologically important 160 line in a move that may add inflationary pressure by pushing up import costs.

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Prime Minister Sanae Takaichi told reporters on Saturday that she has instructed her cabinet to produce estimates on the potential economic impact from the weekend strikes on Iran.

Given Japan's reliance on oil imports, the degree of damage to its economy will depend on whether the conflict leads to a prolonged disruption in shipments from the Middle East.

Japanese shipping firms said on Sunday they were halting operations around the Strait of Hormuz after U.S. and Israel launched military strikes on Iran.

While Japan has three months' worth of oil reserves, a spike in crude prices or a blockade of the Strait could hurt already soft consumption by pushing up prices for a range of goods and services.

"We hope to take necessary steps flexibly to minimise the impact on people's livelihoods and economic activity," Takaichi told parliament, when asked about the government's response.