Yen slide and rising inflation put BOJ on alert: Why Citigroup warns of up to three rate hikes in 2026

BOJ rate hike 2026: The Bank of Japan may be forced into a series of interest-rate increases this year if the yen continues to weaken, with exchange-rate pressures increasingly shaping the outlook for monetary policy.

BOJ Could Raise Rates Up to Three Times in 2026: Citi

According to Citigroup Inc.’s Japan markets head Akira Hoshino, the central bank could raise rates as many as three times in 2026, potentially doubling the current policy level, as per a report.

Dollar Above ¥160 Could Trigger April Rate Hike

Hoshino said that if the dollar climbs above ¥160, the BOJ would likely respond by raising the overnight call rate by 0.25 percentage points to 1% in April, as per a Bloomberg report. He also sees room for a similar increase in July, with the possibility of a third hike by the end of the year if the Japanese currency remains under pressure.


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Negative Real Rates Driving Yen Weakness

He explained that, “Put simply, the yen’s weakness is being driven by negative real interest rates,” which is a situation in which yields remain below inflation, and he added that BOJ “has no choice other than to address this” if it wants to reverse the exchange rate’s direction, as quoted by Bloomberg.

BOJ Watches Yen Impact on Inflation Closely

His comments highlight how currency movements are becoming a key signal for Japan’s policy decisions. BOJ officials are paying closer attention to the impact of a weak yen on inflation, especially as consumers grow increasingly frustrated with rising prices after decades of relatively stable costs.

Market Expectations Split on Timing of Next BOJ Hike

While many observers still expect the next rate hike to be months away, some believe the central bank could act sooner if the yen weakens further. Economists surveyed by Bloomberg are forecasting one rate increase every six months, with most pointing to July as the timing for the next move. Traders, meanwhile, are pricing in one hike by July and see a 90% chance of another by December, based on the swaps market.

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Yen Expected to Trade Between 150 and 165 Per Dollar

Hoshino expects the yen to trade in a range from just below 150 to 165 per dollar this year, as per the Bloomberg report. The currency was trading at 158.2 per dollar on Tuesday morning in Tokyo, after hitting an 18-month low of 159.45 last week.

Higher Yields Could Drive Investment Back to Japan

He also noted that if key interest rates, such as 10-year government bond yields, begin to exceed inflation, Japanese institutions may start shifting investments back home from overseas. Limited domestic investment options, he said, have been one of the reasons the weak yen has persisted for so long.

Citi Aims to Match Supply and Demand Earlier in Deals

Hoshino pointed out that, “Our goal is to better match supply and demand from as early a stage in a transaction as possible,” adding, “That allows the investment banking team to offer the most effective financing solutions to clients," as quoted by Bloomberg.

FAQs

Why might the Bank of Japan raise interest rates?

Because persistent yen weakness is increasing pressure on monetary policy.



How many rate hikes are possible in 2026?

Up to three rate hikes, as per Citigroup’s Akira Hoshino.