Investors are increasing their bets that the Bank of Japan will need to keep raising borrowing costs as a weaker yen fuels inflation and puts pressure on the central bank to tighten its policy to prop up the currency.
The BoJ’s calculus has been complicated by the shifting tone in the US, where Federal Reserve chair Jay Powell has signalled that interest rates may need to stay high to tame inflation. Traders have built up bets that the Fed could even tighten policy again.
That has sent the yen weakening past ¥155 to a 34-year low against the dollar, sparking an unusually blunt warning from BoJ governor Kazuo Ueda that the central bank could act if the weaker yen impact became “too big to ignore”.
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