Bank of Japan prepares for second interest rate hike this year
Markets are awaiting clues about the path of monetary policy in 2026.
The Japanese yen rose in Asian trading on Monday against a basket of major and minor currencies, resuming gains that had paused on Friday against the US dollar, benefiting from the weak performance of the US currency, which is trading near low levels due to the Federal Reserve.
The Japanese yen began the week in positive territory, supported by increased buying interest ahead of the Bank of Japan meeting on Thursday and Friday, where markets widely expect an interest rate hike of around 25 basis points, the second monetary tightening move this year.
Price overview
Today's Japanese Yen exchange rate: The dollar fell against the yen by 0.4% to (155.18), from today's opening price of (155.80), and recorded a high of (155.99).
The yen ended Friday's trading down 0.15% against the dollar, its first loss in the last three days, amid a pause in the decline of the US currency.
US dollar
The dollar index fell by about 0.1% on Monday, nearing its lowest level in two months once again, reflecting the weakness of the US currency against a basket of global currencies.
The US dollar has been under negative pressure since last week’s Federal Reserve meeting, after its results were less hawkish than markets had expected, reviving bets on the continuation of the Federal Reserve interest rate cut cycle through 2026.
Bank of Japan
The Bank of Japan is meeting on Thursday and Friday of this week, amid strong expectations that it will raise interest rates by about 25 basis points to a range of 0.75%, the highest level since 2008 when the global financial crisis erupted.
Markets are closely watching what Governor Kazuo Ueda will say about the direction of monetary policy during 2026, at a time when expectations are growing that the Japanese government will resort to further expansionary fiscal measures, which deepens the complexity of the picture for the Bank of Japan.
Japanese interest rate
Following the recent release of inflation and wage data in Japan, pricing in the probability of the Bank of Japan raising interest rates by a quarter of a percentage point at its December meeting has stabilized above 90%.
In his latest comments, Bank of Japan Governor Kazuo Ueda offered a more optimistic outlook on the Japanese economy, saying the central bank would consider the pros and cons of raising interest rates at its next monetary policy meeting.
Three government officials told Reuters that the Bank of Japan will likely raise interest rates this December.
Opinions and analyses
Analysts at Societe Generale said they expect the Bank of Japan to raise its interest rate to 1% by July of next year, while also predicting that the bank will raise interest rates when it announces its monetary policy decision on Friday.
Analysts added: With the interest rate reaching 1%, the Bank of Japan will enter an unprecedented phase, likely adopting a cautious approach to monetary tightening through gradual increases of 25 basis points, while closely monitoring the impact on economic growth and price levels. We expect each interest rate hike to be spaced at least nine months to a full year apart.
