LIVE MARKETS-Japan's rate path hinges on yen moves

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JAPAN'S RATE PATH HINGES ON YEN MOVES

With investors on alert for possible FX intervention to stem the yen's JPY= slide, Citi has taken a look at Japan's macro outlook and prospects for further policy tightening as the country moves to normalise monetary conditions.

The Bank of Japan raised interest rates by a quarter of a point to 0.75% on Friday, marking the first hike since January and taking borrowing costs to levels unseen in 30 years.

Further ahead, the U.S. investment bank expects the BOJ hike again in July 2026 and continue with increases every six months through mid-2027, taking the policy rate to 1.5%.

Though, it cautions, FX remains a key swing factor.

A weaker yen – potentially driven by resilient U.S. growth or fewer Fed cuts - might force the BOJ to tighten earlier than July, while sharp yen appreciation could delay moves.

"We pencil in a July rate hike. We think PM Takaichi, now apparently concerned with a weak yen risk, will probably accept a rate hike..." says Citi Japan chief economist Katsuhiko Aiba.

"However, as has been the case with previous rate hikes, FX is the major risk to our baseline scenario".

(Danilo Masoni)

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