BOJ hints rate hike as yen falls

The Bank of Japan (BOJ) is signaling a potential shift in its ultra-loose monetary policy as a weakening yen raises inflation expectations, Reuters reported on Wednesday.

Board member Seiji Adachi warned that the central bank may raise interest rates if the yen’s decline persists and significantly impacts inflation.

Sustained currency depreciation may lead to policy changes at the BOJ. Adachi highlighted the importance of weighing both economic risks, warning against early rate hikes but recognising the possibility of inflation speeding up.

“We aim to gradually adjust our monetary support based on economic data, prices, and financial developments,” Adachi said, hinting at the possibility of a near-term rate hike to maintain price stability around the target two per cent.

The BOJ plans to raise rates gradually as inflation increases slowly. This decision follows a 10 per cent drop in the yen’s value against the dollar this year, despite the BOJ’s move to end negative interest rates in March after eight years.

The weak yen is raising worries about higher import costs and reduced consumer spending, leading to speculation of an early rate hike to stabilise the currency.

A government survey also showed a second month of declining consumer sentiment due to increasing prices.

Japan’s 10-year government bond yield reached its highest level since December 2011 due to expectations of a rate hike and potential reduction in the BOJ’s bond purchases.