Yen Slump May Force Japan's Hand on Interest Rate Policy
A leading financial analyst warns that persistent yen weakness could push Japan’s central bank to raise interest rates three times by 2026. The moves would mark a significant shift from decades of ultra-loose monetary policy.
If the dollar-yen pair holds above 160, a 25-basis-point hike in April is likely, lifting the unsecured overnight rate to 1%. Such a move would signal a structural shift in monetary stance, not just a tactical adjustment.
- A second hike could follow in July if depreciation continues
- A third increase before year-end isn’t off the table
- Negative real interest rates remain the core driver of yen weakness
According to the expert, addressing the yield gap is essential to reversing capital outflows. The yen is expected to trade between 150 and 165, but policy uncertainty is growing.
With global rates diverging, Japan faces a delicate balancing act between growth and currency stability. Upcoming wage trends and inflation prints will be critical in shaping the pace of tightening.