BOJ Rate Hike Expected to 1.25%, But Politics and Fed Decision Key to Yen

Citi Research expects the Bank of Japan to raise its key policy interest rate to 1.25% at its upcoming meeting, but the voting behavior of two Policy Board members and the Federal Reserve's next decision will be crucial for the yen's trajectory.

The Wall Street bank noted that while a rate hike by the BOJ this month is largely priced in by financial markets, investors will be hyper-focused on the voting behavior of Toichiro Asada and Ayano Sato, both seen as aligned with Prime Minister Sanae Takaichi's reflationary economic agenda.

A unanimous decision to raise rates could signal that the Takaichi administration is bowing to pressure from U.S. Treasury Secretary Scott Bessent, who has called for the normalization of Japanese monetary policy following joint currency interventions between Washington and Tokyo.