Citi Sees BOJ Hike to 1.25%, Warns of Political Pressure and Fed Influence

Citi Research has predicted that the Bank of Japan (BOJ) will raise its key policy interest rate to 1.25% at its upcoming meeting.

The Wall Street bank believes that while a rate hike by the BOJ this month is largely priced in, investors will be closely watching the voting behavior of two Policy Board members seen as aligned with Prime Minister Sanae Takaichi's reflationary economic agenda.

Board members Toichiro Asada and Ayano Sato, who both voted against a rate hike in June, will be under intense scrutiny. A dissenting vote from either member could reinforce market perceptions of persistent political pressure on the central bank to keep borrowing costs low.

Citi analysts also note that near-term currency movements remain heavily dependent on the U.S. Federal Reserve's decision next week, with ongoing downward momentum potentially pushing the greenback down toward 152 yen.