Economist: Weak yen clears path for BOJ's December rate hike, with further hikes likely if downtrend persists

TechFlow news, December 17 — According to economist Alicia Garcia Herrero's analysis, the persistent weakness of the yen is becoming a decisive factor in the Bank of Japan and the Japanese government reaching consensus this month on supporting the long-anticipated interest rate hike. Despite concerns over U.S. tariffs and broader geopolitical risks, the Japanese economy has proven more resilient than expected. Short-term, medium-term, and long-term inflation expectations remain above the Bank of Japan's 2% target, strengthening the case for further policy normalization. Food prices have pushed up core inflation, and the yen's continued depreciation near 155 against the U.S. dollar could exacerbate imported inflationary pressures. Alicia Garcia Herrero expects the Bank of Japan to raise its policy rate by 25 basis points to 0.75% at its meeting on December 19. Looking ahead, if the yen fails to stabilize after the rate hike and continues to weigh on real incomes, the Japanese government may also accept further tightening, potentially opening the door for another 25-basis-point rate increase early next year. (Jinshi)