Citigroup's Head of Markets in Japan, Akira Hoshino, has issued a stark warning that the Bank of Japan (BoJ) could be forced to implement a series of interest rate hikes totaling up to 300 basis points in 2026 if the yen's downward pressure persists. Hoshino stated there is a high probability the central bank will double its current policy rate, with the first move potentially coming as early as April.
Hoshino outlined a specific trigger and timeline: if the U.S. dollar surpasses ¥160, the BoJ might raise the overnight call rate by 25 basis points to 1% in April. This could be followed by an identical hike in July and a third increase before the end of December, contingent on continued yen weakness. The Japanese currency recently hit an 18-month low of ¥159.45 against the dollar and was last trading around ¥158.2.
The Citigroup executive attributed the yen's persistent decline to negative real interest rates, where yields are significantly lower than inflation. He urged the BoJ to address this imbalance to shift the exchange rate pattern. Hoshino's analysis, backed by over 30 years of market experience, suggests that higher key interest rates, such as on 10-year bonds, could prompt Japanese institutions to repatriate foreign investments into domestic fixed-income assets.
Market participants are divided on the timing, but prediction markets reflect heightened expectations. Swap market pricing indicates a 90% likelihood of a rate hike by December, with many traders anticipating a move in July. Hoshino projected the yen could trade in a wide range of 150 to 165 against the dollar amid this uncertainty.
Separately, Hoshino, who assumed his role in March 2025, expressed his intent to enhance collaboration between Citigroup's markets and investment banking teams in Japan to capitalize on deal-making opportunities, aiming to align financing solutions early in transactions.
