The Japanese yen is under significant pressure, with the USD/JPY pair nearing the critical level of ¥156. This depreciation has prompted the Bank of Japan (BOJ) to consider raising interest rates, marking a potential major shift from its long-standing dovish monetary policy. The BOJ has maintained ultra-low or negative interest rates since 2016 to stimulate growth, but the yen's sharp decline has raised concerns about inflation, particularly from more expensive imports.
Officials, including Governor Kazuo Ueda and board members like Junko Koeda and Kazuyuki Masu, have signaled readiness for a rate hike, with discussions focusing on the feasibility and timing at upcoming meetings. A key meeting between Prime Minister Sanae Takaichi and Governor Ueda last week eased political pressure, clearing the way for a possible move in December. The BOJ's tone has shifted rapidly, with inflation risks from the weak yen now a primary concern, and a Reuters poll indicates a small majority of economists expect a hike at the December 18–19 meeting, projecting rates to reach 0.75% by March.
If implemented, this rate hike could end Japan's easy money era and impact global forex markets, potentially attracting foreign investment due to higher yields. The Federal Reserve's upcoming decision may influence yen trading, adding to the urgency. Additionally, the BOJ's ETF holdings reached a record ¥83.2 trillion, with plans to sell them over time, though sales are expected to start cautiously to avoid market disruption.
