Citigroup Warns of Triple BOJ Rate Hikes as Yen Trades Near 18-Month Low

TLDR

• Citigroup’s Head of Markets in Japan, Akira Hoshino, warned of potential BoJ rate hikes if the yen continues to weaken.
• Hoshino stated that the Bank of Japan could raise interest rates by up to 300 basis points during 2026.
• He mentioned that if the dollar crosses ¥160, a 25 basis point rate hike to 1 percent could occur as early as April.
• He also projected two more possible rate hikes, one in July and another before the end of the year.
• Hoshino explained that the yen is falling due to negative real interest rates where yields are below inflation levels.

Citigroup’s Head of Markets in Japan, Akira Hoshino, has expressed concerns over the Bank of Japan‘s (BoJ) interest rate policies. He highlighted the potential for significant rate hikes if the yen continues its decline. His remarks come as the yen hits its lowest point in 18 months, raising questions about Japan’s monetary strategy.

Citigroup’s Rate Hike Forecast

Hoshino believes there is a high probability that the BoJ will raise interest rates by 300 basis points this year. He emphasized that the rate could double from its current level if the downward pressure on the yen persists. Specifically, Hoshino noted that if the dollar surpasses ¥160, the BoJ might raise the overnight call rate by 25 basis points to 1% in April.

He also projected the possibility of two additional rate hikes later this year. According to Hoshino, the BoJ may increase rates again in July and again before December. This would depend on the yen’s continued weakness, which has been a persistent issue for the Japanese economy.

Hoshino’s Analysis of the Yen and Interest Rates

Hoshino explained that the yen’s decline is largely due to negative real interest rates. He cited the situation where yields are much lower than inflation, pushing the yen lower. The Citigroup executive stressed that the BoJ must address this imbalance if it hopes to stabilize the currency.

Hoshino’s views were supported by his extensive market experience, spanning over three decades. He argued that the BoJ’s policies have been too lenient on exchange rates and that a more active approach could help the yen recover. Hoshino suggested that if the BoJ raises key interest rates, such as 10-year bond yields, investors may shift their focus back to Japanese assets.

Potential Impact on the Markets

Citigroup’s Head of Markets also warned that the weak yen could lead to a shift in investment strategies. If interest rates rise, Japanese institutions may repatriate foreign investments into domestic fixed-income assets. This shift could benefit Citigroup’s Tokyo-based traders, who have been closely monitoring these developments.

Despite these concerns, analysts remain divided on the likelihood of immediate rate hikes. Some believe that the BoJ may wait months before raising rates, while others expect action sooner. A key point of focus for traders is the rising likelihood of a rate hike in July, with swap market pricing showing a 90% chance of another increase in December.

Citigroup’s forecast comes as the yen continues to struggle against the dollar, last trading at ¥158.2 after hitting a low of ¥159.45. This reflects the ongoing challenges faced by Japan’s economy, as it battles the impact of a weakening currency on inflation and consumer prices.

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