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Japan interest rate rise: Will yen continue to rise following BoJ meeting?

By Fitri Wulandari

Edited by Georgy Istigechev


The Japanese national flag flutters in the wind on part of the Bank of Japan
Japan has maintained ultra-low interest rates despite rising inflation – Photo: Richard A. Brooks / AFP / Getty Images

The Japanese yen has continued to rally against the US dollar (USD/JPY), gaining close to 10% over the course of the past two months. 

“The yen’s two-month 10% surge – USD/JPY fell from 151.9 to 136 – has been fuelled by a number of factors, including the Japanese FX intervention, speculation about the Fed cutting interest rates next year, China’s reopening, and the rumours behind a BoJ hawkish tilt,” says’s FX strategist Piero Cingari.

The Bank of Japan (BoJ) has refused to abandon its ultra-low interest rate policy, widening the gap with rates in the United States, as the US Federal Reserve (Fed) continues its aggressive path of monetary tightening, albeit at a slightly subdued rate.

Analysts have said that the Japan interest rate is unlikely to rise until Governor Haruhiko Kuroda retires in Q1 2023 after 10 years of leading the BoJ.

Will the Japanese interest rate rise after Kuroda retires? 

What is the Bank of Japan?

Established in 1882 by the Bank of Japan Act, the Bank of Japan (BoJ) is the country’s central bank. 

The BoJ’s Policy Board, which was established in June 1949, decides on the country’s monetary policy and the bank’s business operations. One of the BoJ’s monetary policy objectives is keeping annual inflation at 2%.

The bank’s board meets eight times a year to examine monetary policy-related issues. In its Monetary Policy Meetings (MPM), the board modifies the rules for money market transactions, the basic Japan loan interest rate, the basic discount rate and reserve requirement ratios.

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Japan interest rate history

Throughout 2021, Japan bank interest rates had been kept at the January 2016 level of -0.10%, maintaining the negative policy rate for five years, based on Japan interest rate history.

The BoJ has not raised interest rates in Japan despite central banks in several developed nations, including the Bank of England (BoE) and the Reserve Bank of New Zealand (RBNZ), ramping up their policy rate to fight inflation.

The bank was not unaware of the looming risks, though. In its monetary policy statement on 17 December 2021, the BoJ acknowledged risks, including the effects of the US policy responses, geopolitical risks and rising inflation expectations at home. 

However, the bank insisted it was premature to adjust its monetary easing measures, saying it could hinder Japan’s economic recovery from the pandemic, causing an economic downturn and a decline in prices.

The BoJ’s statement read:

“In the conduct of monetary policy, the Bank should strengthen its monetary easing stance with a view to improving the output gap and inflation expectations, and thereby achieve an economic recovery and the price stability target early.”

BoJ keeps ultra-low rate amid rising inflation and weakening yen 

The Bank of Japan maintained its interest rate at -0.1% during its seventh monetary policy meeting on 28 October 2022, despite the country’s annual inflation rate coming in at 3.6% in October (above the 2% target), according to Japan’s e-Stat service. The Japanese yen has sharply depreciated since that decision. 


1.29 Price
-0.340% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
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153.91 Price
+0.030% 1D Chg, %
Long position overnight fee 0.0107%
Short position overnight fee -0.0189%
Overnight fee time 21:00 (UTC)
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+0.110% 1D Chg, %
Long position overnight fee -0.0087%
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Overnight fee time 21:00 (UTC)
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-0.460% 1D Chg, %
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USD/JPY Exchange Rate (2017-2022)

USD/JPY Exchange Rate (2017-2022)Past performance is not a reliable indicator of future results – Source: TradingView, IDC

On 22 September, the yen briefly hit 145 against the dollar, the lowest since 1998, following the BoJ’s decision to keep its negative policy rate. As of 21 December, USD/JPY was trading at around 131.985, up 15.6% in a year as the widening gap between BoJ and the Fed policy rate has strengthened the dollar.  

On 20 December, the BoJ widened the range in which it allows 10-year bond yields to trade, letting them fluctuate by plus or minus 0.5% of its target of zero, instead of the previous 0.25%.

The country first enacted its ‘yield curve control’ (YCC) policy in 2016, with the 0.25% band in place since 2021. In a press conference, BoJ governor Haruhiko Kuroda denied the move marked a pivot away from Japan’s ultra-loose monetary policy, saying that adjusting the yield target “does not signal the end of YCC or an exit strategy.”

Tohru Sasaki, head of Japan market research at JPMorgan, said the bank’s move was borne out of concern about the effect that volatility in global markets was having on Japanese markets. Sasaki was cited by the Financial Times as saying:

“If a market malfunction is also an important reason for today’s move, a further move may follow because just a 25 [basis point] move cannot end or improve the malfunctioning.”

Jim Reid, head of global fundamental credit strategy at Deutsche Bank, added:

“It’s important not to underestimate the impact this could have, because tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly.”

The FT also cited Fredrik Repton, portfolio manager at Neuberger Berman, as saying the central bank’s decision would “"intensify speculation that a pivot or even abandonment of the YCC could occur in the new year”.

Japan interest rate outlook: 2022 and beyond

Dutch lender ING Group was sceptical that the BoJ would flip negative Japan interest rates in the next three meetings before Kuroda, who has led Japan’s central bank since 2013, retires. The Japanese interest rates may not be changed even after Kuroda leaves BoJ. 

In a note on 20 December, Min Joo Kang, ING senior economist for South Korea and Japan, commented on the BoJ’s recent move:

“Governor Haruhiko Kuroda reiterated that cost-push inflation is not sustainable and inflation will slow down to 2% next year.  At the [2- December] press conference, Kuroda tried his best to minimise market expectations for further policy changes. He stressed repeatedly that today’s move is not the first step towards an exit and a further widening of the yield band is not needed. We think today’s decision has undermined the BoJ’s credibility on future policy guidance. From the remarks made today, we are unable to answer our question, why now?

“Despite the denials, we think Governor Kuroda is trying to pave the way for policy normalisation before stepping down. A policy shift immediately after the leadership change is difficult and could miss the opportune time to end the decades-long ultra-low policy. He may be right that monetary policy should remain accommodative until a stable 2% inflation target is met and that the policy review is not needed in the short term. But, with today’s tweak, his successor will have more flexibility to deploy monetary policy in the future. 

“We also expect that the BoJ will maintain its policy balance rate at -0.1% for a while and that the BoJ will take a wait-and-see approach until the next annual wage negotiation season (Shunto) in April/May. However, market participants will likely bet on further tightening, which will likely create market noise that the BoJ did not intend.”

ING and Fitch Ratings forecast that the Japan interest rate would remain unchanged at -0.1% until 2024, after Kuroda retires. analyst Daniela Hathorn said currency intervention is more feasible, to avoid the yen from devaluing too much against other currencies. Hathorn took the example of Japan’s government purchase of JPY several months ago to prop the currency, with the state spending nearly $20bn to support the yen. She added:

“That said, currency interventions are rarely successful, and USD/JPY has continued to push higher despite the brief relief last month, so the BOJ may need to start looking for more sustainable measures if they want to have an impact on the JPY.”

The bottom line

ING and Fitch Ratings forecast that BoJ will keep its ultra-loose policy rate until 2024, well after Kuroda retires in Q1 2023.’s Hathorn said the BoJ may need to find other measures to arrest the yen’s slump. 

Keep in mind that analysts’ opinions and forecasts can often be wrong. Forecasts should not be used in place of your own research. Always conduct your own due diligence before trading or investing. And never invest or trade money that you cannot afford to lose.


What is Japan's current interest rate?

Japan’s current interest rate is -0.10%.

What is Japan's inflation rate?

The annual inflation rate for all items in Japan in October 2022 was 3.6%, according to Japan’s e-Stat service. This was the highest rise in inflation since February 1982.

How much debt does Japan have?

As of 30 September 2022, the central government’s debt was JPY12.55trn ($9.2trn), or 266% of GDP, according to data from the Japanese Ministry of Finance. The figure is the highest of any developed nation.

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