"BOJ Contemplating Optimal Timing for Rate Hike Amid Deepening Yen Depreciation"

Dollar at 150 Yen Breaks 'Psychological Resistance Line'
Suggests Possible Foreign Exchange Market Intervention
"Will Not Raise Interest Rates Due to Simple Yen Weakness"

As the yen's depreciation accelerates, the Bank of Japan (BOJ) is reportedly struggling to determine the optimal timing for an interest rate hike, Bloomberg reported on the 14th (local time).

On the 13th (local time), the U.S. January Consumer Price Index (CPI) was announced to have risen 3.1% year-on-year, exceeding market expectations, causing the yen-dollar exchange rate to surge 1% and surpass 150 yen. The report evaluated this as breaking through a psychological resistance level that would determine the Japanese monetary authorities' intervention in the foreign exchange market.

Kazuo Ueda, Governor of the Bank of Japan
Photo by Yonhap News

Most Japanese banking experts expect the interest rate hike to occur in March or April. Although a swift base rate increase could preserve the yen's value, it is analyzed that the BOJ hesitates to act promptly because it might give the impression of passively responding to market movements.

Yuichi Kodama, Chief Economist at the Meiji Yasuda Research Institute, said, "It is undeniable that the yen's value has become a more important factor in deciding the end of the BOJ's negative interest rate policy," adding, "While I do not completely rule out a March hike, an April increase is the most likely as long as the yen's value remains at this level."

Masato Kanda, Deputy Vice Minister for International Affairs at the Ministry of Finance, warned that the recent sharp decline in the yen's value contains "partly speculative elements." He further hinted at the possibility of foreign exchange market intervention by stating, "Authorities are monitoring the market in real time and are prepared to take necessary measures."

The BOJ directly intervened in the foreign exchange market three times in 2022 when the yen approached 152 against the dollar, marking its lowest level in decades. The yen's value has fallen about 6.4% against the dollar this year, the largest decline among major currencies. Takeshi Minami, Chief Economist at the Norinchukin Research Institute, said regarding the yen's weakness, "It does not seem that the yen's collapse will continue further," and added, "The BOJ is unlikely to hasten ending the negative interest rate policy solely because of the yen."

Since December 2022, the BOJ has already adjusted its Yield Curve Control (YCC) program three times, easing measures to suppress the rise in 10-year government bond yields. Japanese banking experts analyze this as the BOJ's effort to reduce pressure on the yen's depreciation.