Middle East Tensions Persist as Expectations for a Bank of Japan Rate Hike Rise

Daily News

Summary:

Iran says it will not bow to threats and that its seven-day proposal for reopening the Strait of Hormuz remains on the table. The IMF warns that the Bank of Japan may need to accelerate its pace of rate hikes if inflation exceeds expectations.

Headlines

1. Iran: We will not bow to threats; the seven-day proposal for the Strait of Hormuz remains valid.

2. Vance: Gasoline prices are expected to fall once the conflict ends; Iran must pledge not to rebuild its nuclear program.

3. Iran says it has prepared a response to any potential new “adventure.”

4. Mass protests erupt across France, with hundreds arrested.

5. Iran urges the US to accept its proposal to reopen the Strait of Hormuz.

6. IMF: BOJ may need to accelerate rate hikes if inflation exceeds expectations.

7. Approval rating for Sanae Takaichi's Cabinet falls to a record low of 49.1%.

8. US fiscal deficit reaches $1.99 trillion in FY2026, the highest in five years.

Detailed

Iran: We Will Not Bow to Threats; the Seven-Day Proposal for the Strait of Hormuz Remains Valid

Iran's foreign minister said that Iran would never bow to threats and was better equipped than ever to defend itself. He added that Tehran was also prepared to pursue diplomacy, provided that the process preserved Iran's dignity and honor and safeguarded the rights of the Iranian people.

He said Iran's conditions were entirely clear and had been submitted to the United States in the form of a seven-day proposal. Washington had put forward its own views, and Tehran was still responding.

Iran's seven-day proposal to reopen the Strait of Hormuz remains valid. If the United States meets Iran's conditions, the strait could reopen within six days, with negotiations resuming on the seventh day.

Vance: Gasoline Prices Expected to Fall Once the Conflict Ends; Iran Must Pledge Not to Rebuild Its Nuclear Program

US Vice President JD Vance said gasoline prices would fall once the conflict ended and that the US military would ensure the free flow of oil through the Strait of Hormuz.

He also warned that allowing Iran to control shipping through the strait would constrain global energy supplies and push gasoline prices higher.

Vance said Washington had, in a sense, achieved a decisive victory over Iran. However, he stressed that the conflict could not be considered over until Tehran made a firm commitment not to rebuild its nuclear program.

Iran Says It Has Prepared a Response to Any Potential New “Adventure”

Mohsen Rezaei, secretary of Iran's Supreme National Security Council, said on October 18 that Iran's armed forces had prepared responses to any new “adventure.”

In a social media post that day, Rezaei said the inflammatory rhetoric and repeated threats issued by US and Israeli officials in recent days had done nothing to change the realities on the battlefield.

He added that Iran's armed forces had developed response plans for any potential new “adventure,” warning that the resulting damage would far exceed that of previous confrontations. Iran's new operational plans, he said, would no longer follow rules familiar to its adversaries.

Mass Protests Erupt Across France, with Hundreds Arrested

Demonstrations and protests took place across France on October 17, with violence reported in some areas and hundreds of people arrested.

French Interior Minister Laurent Nuñez told BFM TV that evening that approximately 550,000 people had participated in protests nationwide, including 110,000 in Paris. Preliminary figures indicated that around 400 people had been arrested across the country.

The French General Confederation of Labour (CGT), however, put nationwide turnout at 800,000.

According to French media reports, the demonstrations brought together farmers, climate activists, students and other groups, with some trade unions also taking part. Their grievances included fuel prices, the cost of living, education and public services.

Iran Urges the US to Accept Its Proposal to Reopen the Strait of Hormuz

Iranian Foreign Minister Abbas Araghchi told Iranian media on Sunday that Tehran's proposal to reopen the Strait of Hormuz remained on the negotiating table.

He reiterated that Iran's offer to reopen the strait within seven days remained valid. If Washington accepted Tehran's conditions, the strategic waterway would reopen within six days, and US-Iran negotiations would resume on the seventh day.

However, US President Donald Trump said on Friday that the United States might target Kharg Island, which is linked to Iran's nuclear program, to ensure that Iran did not obtain nuclear weapons.

Separately, Israeli media, citing security officials on Thursday, reported that Israeli and Western intelligence indicated Iran was taking extreme military measures. Israeli Prime Minister Benjamin Netanyahu subsequently held a phone call with US Secretary of State Marco Rubio to discuss plans for potential military strikes against Iran.

IMF: BOJ May Need to Accelerate Rate Hikes if Inflation Exceeds Expectations

Krishna Srinivasan, director of the International Monetary Fund's Asia and Pacific Department, told Reuters that the Bank of Japan was right to continue normalizing monetary policy. If inflation rises more than expected, the BOJ may need to accelerate the pace of rate hikes.

Srinivasan also said Japan needed to clarify how it would finance its substantial spending plans and establish a medium-term fiscal framework to ease market concerns about fiscal risks.

Regarding the BOJ's efforts to move its policy rate toward a neutral level, Srinivasan said the central bank was taking the right approach. If inflation accelerates faster than expected, the BOJ would need to tighten policy more quickly to prevent inflation expectations from becoming unanchored. The appropriate pace, he emphasized, would depend on incoming data.

The BOJ is scheduled to hold a policy meeting this month and may leave interest rates unchanged while signaling a more hawkish stance. Such signals could reinforce market expectations for a rate hike in December.

Approval Rating for Sanae Takaichi's Cabinet Falls to a Record Low of 49.1%

According to a nationwide telephone poll conducted by Kyodo News, approval for Japanese Prime Minister Sanae Takaichi's Cabinet stood at 49.1%. This marked the first time her Cabinet's approval rating had fallen below 50% since she took office in October last year, setting a new low.

Last Thursday, Takaichi announced the appointment of Arata Takebe, a Liberal Democratic Party member of the House of Representatives, as agriculture minister. He replaced Kazuo Yanagawa, who resigned following scandals, including controversial remarks about the abuse of power.

Regarding an income-linked subsidy scheme to be introduced alongside a consumption tax cut, 50.8% of respondents expressed support, while 42.9% opposed it. Meanwhile, 65.1% said they were either concerned or somewhat concerned about the impact of the tax cut on government finances.

US Fiscal Deficit Reaches $1.99 Trillion in FY2026, the Highest in Five Years

Data released by the US Treasury on October 16 showed that the federal budget deficit for fiscal year 2026, which ended on September 30, widened by $217 billion from the previous year to $1.99 trillion. This was the largest deficit since fiscal year 2021 and the third-largest annual deficit on record.

Federal revenue reached a record $5.40 trillion in FY2026, up 3% year over year, while federal spending climbed to a record $7.40 trillion, an increase of 6%. Interest payments on the national debt rose 12% from a year earlier to a record $1.36 trillion.

In addition, a US Supreme Court ruling that struck down most of the Trump administration's tariffs led to $145 billion in tariff refunds during FY2026. Net tariff revenue fell 11% year over year to approximately $173 billion.

The US Treasury estimated that the federal budget deficit amounted to 6.2% of GDP in FY2026, up from 5.8% in the previous fiscal year. The deficit for September alone was $27 billion, compared with a surplus of $198 billion in the same month a year earlier.

Today's Economic Calendar

10:00 (UTC+8) China's third-quarter GDP

10:10 (UTC+8) European Central Bank Chief Economist Philip Lane speaks

13:50 (UTC+8) ECB Executive Board member Piero Cipollone speaks

20:30 (UTC+8) Canada's September CPI

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