A stronger yen narrative may cap USD/JPY upside near term, but sustained support likely requires either clearer BOJ tightening signals or a narrowing in U.S.–Japan yield spreads.
Summary:
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The yen rose after Finance Minister Katayama reiterated intervention remains an option
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Reuters reports some BOJ policymakers see scope for earlier hikes, with April in play
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BOJ expected to hold at 0.75% in January, but debate on timing is active
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Weak yen is seen inside BOJ as adding to broadening inflation pressure
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BOJ may lift FY2026 growth and inflation forecasts in next week’s review
The yen strengthened after Japan’s Finance Minister Katayama reiterated that foreign-exchange intervention remains on the table, and gains were reinforced by a Reuters report suggesting some policymakers inside the Bank of Japan (BOJ) see scope to raise interest rates sooner than markets currently expect.
Katayama’s remarks, delivered earlier, signalled Tokyo’s readiness to act against excessive currency moves, including the possibility of joint action with the United States. That rhetoric helped lift the yen by increasing the perceived risk of official pushback against further depreciation.
The move was compounded by an “exclusive” Reuters report citing four sources familiar with BOJ thinking, which said some policymakers view April as a realistic window for another rate hike if evidence continues to build that Japan can achieve its 2% inflation target on a durable basis. While the BOJ is widely expected to keep its policy rate steady at 0.75% at its January meeting, the sources said many policymakers see scope for further tightening, and some would not rule out action as early as April.
That timeline would be earlier than prevailing market and private-sector expectations, which Reuters noted are centred on a move around mid-year. In a Reuters poll, most economists expected the next hike in July, with a strong majority seeing the policy rate reaching 1% or higher by September.
A key driver of the internal debate is the yen itself. The Reuters report said the risk that a weak yen could add to already broadening inflationary pressure is drawing increasing attention within the BOJ. Yen depreciation raises the cost of imported fuel, food and raw materials, and could encourage companies to pass through higher costs into a wider range of consumer prices, potentially complicating the BOJ’s assumption that cost-push inflation will moderate smoothly.
Reuters also reported that the BOJ is likely to raise its fiscal 2026 growth and inflation forecasts in its quarterly review due next week. Current forecasts from October projected 0.7% growth and 1.8% core inflation for fiscal 2026, but sources suggested those numbers may be revised higher.
The April BOJ meeting is emerging as a focal point because it follows the annual wage negotiation season and coincides with a new round of forecasts, giving policymakers fresh information on wage momentum, demand resilience and inflation persistence. A shift toward earlier tightening would mark a more hawkish reaction function, particularly if yen weakness is increasingly viewed as a catalyst for action.
For markets, the combination of intervention rhetoric and a potentially more hawkish BOJ narrative provides near-term support for the yen, even if the longer-run direction remains sensitive to U.S.–Japan rate differentials and global risk sentiment.
