The Central Bank's Decision Behind the Yen Depreciation

Recently, the yen exchange rate has been declining steadily, approaching the 158.5 level, close to its lowest point in 38 years. This is not just a numbers game—each time it breaks through an integer threshold, it hints at subtle shifts in the global financial landscape.

According to the latest Bloomberg survey, 48% of economists believe the Bank of Japan will raise interest rates in July. But there's a twist: if the yen continues to weaken, the probability of an earlier move in April is also increasing. The current benchmark interest rate has already risen to 0.75%, and market expectations suggest the terminal rate could reach 1.5%—a level rarely seen in recent years.

Interestingly, 68% of experts favor a pace of rate hikes every six months, but the pressure from the "yen crisis" is accelerating the process. Once it falls below 160, inflation data is likely to rise again, significantly increasing the risk of the central bank being forced to act sooner.

Political factors are also stirring the waters. The stimulus policies implemented after Prime Minister Sanae Takaichi took office have led to continued yen depreciation, with 75% of respondents warning that the weakening currency is forcing the central bank to make quick decisions. If the upcoming general election results favor her, fiscal policy may further expand, making the overall situation more complex.

Next week's economic outlook report will be a key milestone—whether the central bank raises inflation expectations and how the real interest rate path evolves could trigger rate hikes. The game between monetary policy and exchange rates is becoming a focal point in global financial markets.