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Weak Yen Could Accelerate Japan's Next Rate Hike
15 Jan
Summary
- Bank of Japan officials watch yen's inflation impact.
- Rate hold expected Jan. 23, but future hikes may shift.
- Businesses increasingly pass import costs to consumers.
Bank of Japan officials are increasingly focused on the yen's impact on inflation, which could influence the timing of future interest rate adjustments. A rate hold at 0.75% is widely expected for the upcoming policy decision on January 23, maintaining the highest rate in three decades. However, persistent yen depreciation is prompting discussions about potentially accelerating subsequent rate hikes beyond the current summer projection.
The depreciating yen is becoming a significant factor as businesses show a greater inclination to pass on elevated input costs to consumers. This trend is pushing underlying inflation closer to the BOJ's 2% target. Officials are assessing the negative repercussions of a persistently weak yen on the economy, noting that the bank has room to continue raising rates and should prioritize timely policy execution.
Recent yen weakness has persisted despite a December rate hike, with the currency recently hitting an 18-month low against the dollar. Business leaders have voiced concerns, with one suggesting government intervention to halt excessive depreciation. A weaker yen inflates import costs while boosting exporter profits, creating complex economic dynamics.
