BOJ Keeps Yen Watchers on Edge for Rate-Hike Clues

Core View - The emergence of Prime Minister Sanae Takaichi, who is critical of the Bank of Japan's (BOJ) rate hikes, is contributing to downward pressure on the yen as she plans a snap election, which could allow for increased government spending and delay BOJ normalization efforts [1] BOJ Rate Expectations - There is a growing sentiment among BOJ watchers that further yen weakness could prompt earlier rate hikes, with 68% of those polled expecting a rate increase every six months, potentially placing the next hike in June or July [2] - Nearly 60% of surveyed economists believe the BOJ has fallen behind in its monetary policy, a view echoed by US Treasury Secretary Scott Bessent, who emphasizes the need for sound monetary policy communication from Japan [3] Inflation and Economic Indicators - Continued yen weakness, exacerbated by negative real interest rates, could lead to excessive inflation momentum, making it difficult for the BOJ to control inflation, which has averaged above the 2% target for four consecutive years [4] - The BOJ's upcoming meeting is expected to result in no change in rates, following a recent increase to 0.75%, the highest in 30 years, which has not alleviated downward pressure on the yen [6] Market Reactions and Future Outlook - Governor Kazuo Ueda must navigate his post-decision remarks carefully to avoid triggering further yen sell-offs, indicating that rates will continue to rise without committing to an immediate hike [5] - Bloomberg Economics anticipates the next rate hike in July, with Ueda likely to maintain a cautious stance during the upcoming election period [7]