Bank of Japan expected to signal potential rate hike as yen weakens and wage growth fuels inflation, with markets watching carefully for Ueda’s guidance

The Bank of Japan is widely expected to revise up its growth forecast and signal readiness to raise interest rates again as the yen slides and signs of stronger wage growth stoke inflation concerns.

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Governor Kazuo Ueda is unlikely to offer precise guidance on the timing of the next rate move, leaving markets uncertain amid rising bond yields and political instability following Prime Minister Sanae Takaichi’s announcement of a snap election in February.

After lifting its key rate to 0.75% in December the highest in three decades the BOJ is expected to hold borrowing costs steady at its two-day policy meeting.

Analysts will closely scrutinise the central bank’s post-meeting press conference for hints on future tightening, especially in relation to the yen’s depreciation.

The yen has weakened about 8% against the dollar since Takaichi became prime minister, briefly touching its lowest level since July 2024.

Meanwhile, 10-year Japanese government bond yields surged to 2.30%, a 27-year high, raising concerns over import-driven inflation.

Some BOJ officials reportedly see room for a rate hike as soon as April if the yen’s weakness persists.

Analysts largely expect the key rate to reach 1% or higher by September, reflecting confidence in economic resilience amid government stimulus and easing U.S. tariffs.

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The quarterly outlook report, to be released Friday, is likely to show upward revisions for both growth and core inflation forecasts for fiscal 2026, while reaffirming expectations that inflation will sustainably reach the 2% target by the latter half of the fiscal year.