The Bank of Japan (BoJ) kept interest rates at 0.75% at its latest meeting, but internal divisions are beginning to emerge as three of the nine board members supported a rate hike to 1.0%.
Technically, it has been on hold for 4 consecutive months since the last hike in December.
The developments reflect growing concerns about inflationary pressures, particularly following the conflict in the Middle East.
The war involving the United States, Israel and Iran is seen as complicating the BOJ's efforts to gradually normalize monetary policy towards a neutral rate of around 1.5%.
Geopolitical uncertainties continue to weigh on the global economic outlook and the trajectory of Japanese interest rates.
Market attention is now focused on Governor Kazuo Ueda's statement for further guidance on the direction of policy going forward. Signals from the central bank indicate that inflation risks are increasing, even though economic growth projections have been revised downwards.
In its quarterly report, the BOJ raised its core inflation forecast for the coming fiscal year, signaling that price pressures are expected to remain persistent.
Japan's high reliance on energy imports, particularly oil, has left the economy vulnerable to price spikes following disruptions in the Strait of Hormuz.
Meanwhile, the yen's prolonged weakness near 160 against the US dollar remains a concern.
Finance Minister Satsuki Katayama has stressed that the government is prepared to intervene in the foreign exchange market to stem excessive currency depreciation.
A Reuters poll showed that a majority of economists expected the BOJ to raise rates to 1.0% by the end of June, confirming expectations that a tightening of Japanese monetary policy is imminent.
