Under the pressure of yen depreciation, has the Bank of Japan's interest rate hike schedule been moved forward?

【BlockBeats】Recently, Bloomberg asked 52 economists a question: What will the Bank of Japan do next? The answer is quite interesting.

In this survey, economists unanimously agreed on their views regarding the policy meeting on January 22–23 — the benchmark interest rate will remain at 0.75%. But the real disagreement lies in the next step. July has become the most popular choice, with 48% of economists betting on this timing; however, some are optimistic about April (17%) or June (also 17%). Overall, everyone expects the Bank of Japan to maintain a pace of raising interest rates every six months.

But a variable has started to disrupt the situation: the yen. Currently, the yen is hovering around 158.5, approaching the multi-decade low set last July. Sumitomo Mitsui Trust Bank economist Junki Iwabashi pointed out that if the USD/JPY breaks the 160 mark, the central bank’s original plan to raise interest rates could be significantly accelerated. Among the surveyed economists, three-quarters believe that yen weakness is increasing the risk of forcing the central bank to act sooner.

Looking at the entire rate hike cycle, economists have raised their median forecast for the final interest rate to 1.5% — the highest since this survey began tracking at the end of 2023. Interestingly, an updated quarterly economic outlook report will be released next week, which will incorporate the new government’s economic stimulus plan and could serve as a key signal for market expectations on the pace of future rate hikes.

In short, yen depreciation and inflation pressures are changing the central bank’s timetable, which could have significant impacts on global capital flows and asset allocation.