TOKYO — The Bank of Japan is preparing markets for more BOJ rate hikes ahead of its Jan. 22-23 policy meeting, with a weak yen and snap-election politics raising the risk that inflation stays sticky. Policymakers are expected to hold the short-term policy rate around 0.75%, but to signal they are ready to tighten again if currency weakness and wage gains keep price pressures alive, Jan. 20, 2026.
BOJ rate hikes and the weak yen: why the next signal matters
Investors will be watching the tone as much as the decision. A Reuters preview of the meeting and outlook report said the BOJ is likely to revise up its growth forecast for fiscal 2026 and underscore its readiness to lift borrowing costs further, even if Bank of Japan Gov. Kazuo Ueda avoids committing to a fixed timetable.
The yen has become a more direct inflation input — and a harder variable to wave away. Reuters reported the currency has fallen about 8% against the dollar since Japan Prime Minister Sanae Takaichi took office in October, briefly touching an 18-month low of 159.45 last week. Concern about Japan’s fiscal outlook has also pushed yields higher, with the 10-year Japanese government bond yield hitting a 27-year high of 2.30% Tuesday. “Whether the recent yen depreciation will prompt a change in this stance is a key point to watch,” said Ayako Fujita, Japan chief economist at JPMorgan Securities, in the Reuters report.
The BOJ’s meeting schedule and release calendar shows updated forecasts arrive with the Jan. 23 decision, giving Ueda a platform to explain how the bank weighs yen-driven price pressure against the risk that higher yields tighten financial conditions too abruptly — a balance that could determine how quickly BOJ rate hikes return to the forefront.
Snap-election politics complicate the inflation outlook
Takaichi has called a snap election for Feb. 8 and plans to dissolve parliament Jan. 23, seeking voter backing for increased spending and tax cuts. In a Reuters report on her announcement, she said, “I am staking my own political future as prime minister on this election.” Her platform includes a proposed two-year halt to the 8% consumption tax on food — a move that quickly drew market scrutiny as investors weighed the added strain on Japan’s already heavy debt load.
For the BOJ, election-season fiscal promises can cut both ways. Larger stimulus could support demand and prolong cost pressures that are already being amplified by a cheaper currency, strengthening the rationale for BOJ rate hikes. But a political push centered on household relief can also raise pressure to move gradually, especially if bond markets keep testing how far yields can rise without harming growth.
Markets see higher rates, but not a straight line
Economists broadly expect a step-by-step path rather than rapid-fire tightening. A Reuters poll of economists found most expect the next increase in July, with more than three-quarters seeing the policy rate reaching 1% or higher by the end of September. The same poll put the median expected terminal rate at 1.5% — a reminder that markets are debating the destination as much as the next stop in BOJ rate hikes.
How Japan got here
The current moment is the latest step in a slow unwind of Japan’s ultra-easy era. In a September 2023 Reuters poll, most economists expected the BOJ to end negative interest rates in 2024. The bank made that shift in March 2024, when it ended negative rates and scrapped other elements of its unorthodox policy framework. It tightened again in July 2024, when it lifted the policy rate to 0.25% and reduce bond buying.
Most recently, the BOJ raised the short-term rate to “around 0.75%,” from “around 0.5%,” and stressed that “real interest rates are expected to remain significantly negative,” according to its Dec. 19, 2025 policy decision statement. That combination — higher nominal rates but still-negative real rates — helps explain why the yen remains vulnerable and why the central bank’s next signal is being treated as pivotal.
