Yen falls to 40-year low: BOJ expects rate hike

The Japanese yen has fallen to its lowest level in four decades, as the Bank of Japan (BOJ) prepares for a crucial policy meeting. Although the central bank is keeping interest rates unchanged for now, pressure is growing for a tighter monetary signal. This is reported by Reuters.

BOJ holds rates at 1%, but increases are on the horizon

During the meeting on 30 and 31 July, the market expects the BOJ to keep its interest rate at 1%. At the same time, the board is revising its growth forecast upward and lowering its inflation outlook. Nevertheless, the central bank maintains its warning of a possible overshoot of the inflation target, indicating a cautious but vigilant stance.

A Reuters poll shows that 86% of economists expect the BOJ to raise rates to 1.25% by the end of this year. That would be a clear step towards policy normalisation, after years of ultra-loose measures in Japan.

Weak yen adds pressure on Japanese policymakers

The persistent weakness of the yen adds further urgency to the BOJ’s policy. A weak currency makes imports more expensive and reinforces inflationary pressures, forcing the central bank to adopt a stricter tone. The expectation is therefore that the BOJ will deliver a hawkish message during the meeting, even if rates themselves are not raised immediately.

Prime Minister Sanae Takaichi stated that stronger economic growth could help restore confidence in the yen. This indirectly acknowledges that Japan’s monetary stability is currently under strain. The combination of a weak currency, persistent inflation and international trade pressures makes the upcoming BOJ meeting particularly significant for global financial markets.