Oil prices soar amid Middle East tensions, sticky inflation concerns push up global long-term interest rates; Japan faces 'bedfellows with different dreams' in fiscal and …

*This site includes affiliate programs.

[PR] Check ‘Is this stock really undervalued?’ with AI

Analyze undervalued and promising stocks with AI using InvestingPro👇
https://www.investing-referral.com/yanta/

Up to 50% off with a special discount.
Plus an additional 15% off with the coupon ‘yanta’.

Before jumping in after the stock price moves.
Try checking with data whether it is ‘worth buying now’.

The global economy is currently facing a critical juncture where long-term interest rates in major countries are surging in a chain reaction due to rising oil prices caused by escalating tensions in the Middle East and concerns over the resurgence of ‘sticky inflation’ stemming from them. As expectations for additional interest rate hikes by major central banks, such as the U.S. Federal Reserve (FRB), strengthen again, tensions between the market and Japan regarding the direction of fiscal and monetary policy are also rising. This article organizes the situation from trends in the oil market to global interest rate hikes and Japan’s policy challenges.

Oil futures soar due to rising Middle East risks

In the oil market, rapidly rising geopolitical risks in the Middle East are pushing up prices. On September 24, 2026, at the New York Mercantile Exchange (NYMEX), the near-month November contract for WTI crude oil futures closed at $94.61 per barrel, up $2.45 (2.7%) from the previous day. During trading hours, it reached as high as $96.46, a 5% increase from the previous day.

The background includes the expansion of local conflicts, such as the interception of ballistic missiles from the pro-Iranian Houthi armed group in Yemen by the Saudi Arabian military and concerns over the security of the Bab el-Mandeb Strait. Furthermore, in addition to the Iranian President showing a strong stance at the UN General Assembly held in New York, reports have also surfaced regarding a confrontational stance against the resumption of U.S. military attacks, meaning negotiations between the U.S. and Iran to resolve the military standoff are facing significant obstacles.

What is characteristic of this oil price hike is that the market is beginning to price in a medium- to long-term duration of the conflict. In addition to near-month contracts, the rise in long-dated futures is also notable, with U.S. crude oil futures for delivery in September 2027 recording an all-time high in the $76 range. Market participants have also pointed out that it is becoming extremely difficult to predict the eventual outcome.

Meanwhile, amid growing expectations of rising interest rates, New York gold futures, a non-interest-bearing asset, fell for the fourth consecutive day, with the December contract closing at $4,298.0 per troy ounce. This price movement is in contrast to the oil market.

Inflationary pressure brought to the global economy by high oil prices

The surge in oil prices is pushing up overall consumer prices through energy costs, increasing the risk of a global resurgence of inflation. For the global economy, this is a significant factor that brings risks of downward pressure on growth rates and stagflation.

First, there is the pressure on corporate earnings and industrial activity. In addition to the decline in household purchasing power due to rising gasoline prices, manufacturing costs are swelling, and in the chemical industry, production cuts and shutdowns are occurring due to naphtha shortages. The impact is also spilling over into electricity rates, with effects reaching many areas.

Second, there is an imbalance in the impact by region. While the impact on the U.S., a net energy exporter, is relatively small, it is leading to rising import prices and increased fiscal risks in countries dependent on energy imports, such as those in Europe and Asia. In Japan, which is heavily dependent on overseas energy, there is concern that income outflows due to deteriorating terms of trade will expand, creating more serious downward pressure on the domestic economy than on real GDP.

In financial markets, risk-averse movements are spreading, which is a factor in the decline of AI-related stocks and is also contributing to the acceleration of the yen’s depreciation in the foreign exchange market. In its latest outlook, the Organisation for Economic Co-operation and Development (OECD) has revised its 2027 G20 inflation forecast upward to 3.6%, strengthening vigilance against global sticky inflation.

Long-term interest rates in Japan, the U.S., and Europe soar on FRB rate hike expectations

Following the sticky inflation outlook, government bonds are being sold in bond markets across various countries, and long-term interest rates have jumped to historically high levels.

In the U.S., on September 24, the 10-year Treasury yield hit 5.15%, the highest level since July 2007, and the 30-year bond yield also reached 5.44%, the highest since June 2004. Although the FRB ended quantitative tightening (QT) in December 2025, it shifted to interest rate hikes in 2026 due to high inflation. With hawkish remarks coming one after another from senior FRB officials, the ‘FedWatch’ tool, which shows market expectations, indicates that the probability of an additional rate hike at the October meeting has reached 70%.

This impact is also spreading to Europe. In addition to the U.K., the 10-year French government bond yield has risen to the 4.7% range, the highest in about 18 years, and the Norwegian central bank implemented an interest rate hike in September.

Japan’s challenge is the ‘strange bedfellows’ situation between fiscal and monetary policy

In Japan, long-term interest rates briefly hit 3.075%, the highest level in about 30 years since August 1996. This is driven by rising global interest rates as well as market doubts regarding domestic policy management.

Following the inauguration of the current administration, the draft of the government’s ‘Basic Policies’ sparked concerns over fiscal deterioration, leading to turmoil known as the ‘Basic Policies Shock’ that accelerated the rise in interest rates. The administration was forced to take measures such as adding a clause to Article 3 of the Bank of Japan Act to note the central bank’s autonomy, which resulted in even stronger market expectations for an early rate hike by the Bank of Japan.

A precarious structure is becoming evident in Japan’s current policy management. One issue is the inconsistency between fiscal and monetary directions. The total budget request for the fiscal year 2027 general account has reached a record high of approximately 143 trillion yen, with the government continuing to stimulate the economy through expansionary fiscal policy. Meanwhile, the Bank of Japan is forced to proceed with additional rate hikes toward a neutral interest rate that neither stimulates nor cools the economy, with an eye toward achieving its 2% inflation target.

Another issue is that this makes the country vulnerable to market attacks. The ‘mismatched’ stance of expanding fiscal deficits while pursuing monetary tightening is easily tested by the market, and market uncertainty has not been dispelled, as seen in the yen’s depreciation following policy meetings. While the Prime Minister has stated that monetary policy ‘should be left to the Bank of Japan,’ challenges remain in aligning the vectors of both sides.

Summary

The rise in oil prices triggered by escalating tensions in the Middle East is not merely an energy price issue; it is causing a global surge in interest rates through sticky inflation. Faced with expanding fiscal deficits and structural upward pressure on interest rates, central banks in major countries are forced to navigate the difficult task of curbing inflation while maintaining economic growth. In Japan as well, whether appropriate dialogue with the market and between policy authorities can be established amidst the tension between expansionary fiscal policy and monetary tightening will be a major focus moving forward.

[PR] Complete Guide to Account Opening Benefits at GMO Click Securities: Up to Over 1 Million Yen in Cashback and Reasons Why It Continues to Be Chosen

Click here to open an account with GMO Click Securities ▼

[PR] Check ‘Is this stock really undervalued?’ with AI

When stock prices move significantly, you want to check the ‘fair value’ before buying based on momentum alone.

With InvestingPro, you can use AI to search for undervalued and promising stocks while checking fair value, financial data, and analyst forecasts all in one place.

‘Not sure what to buy?’
‘Want to know if the current stock price is high or low?’

Here is a decision-making tool for your stock selection 👇
https://www.investing-referral.com/yanta/

[Special Discount]
Up to 50% off
Plus an additional 15% off the displayed price with coupon code ‘yanta’

When you find a stock you’re interested in, check the numbers first.
Try using InvestingPro for stock selection that doesn’t rely solely on intuition.

*Includes PR and affiliate links.
*Please make investment decisions at your own discretion.