BOJ May Hike Rates in October as Yen’s Slide Deepens, Says Former Executive

The yen’s sharp decline following Sanae Takaichi’s rise in Japan’s political landscape may pressure the Bank of Japan (BOJ) to raise interest rates sooner than expected, possibly as early as this month, according to former BOJ executive Kazuo Momma.

The yen has plunged since Takaichi’s victory in the ruling party leadership race on Saturday, sparking fears that her dovish fiscal stance could delay further rate hikes. Ironically, this market pessimism toward the yen could force the BOJ’s hand at its next policy meeting on October 29–30, Momma told Reuters.

While BOJ Governor Kazuo Ueda remains cautious amid concerns over a slowing U.S. economy, persistent yen weakness could shift his stance. “The biggest loser from a weak yen is the government,” Momma explained, noting that the depreciation increases import costs, fuels inflation, and undermines political support. Takaichi, despite her dovish reputation, may agree to an early hike if the yen’s decline accelerates.

Momma emphasized that the yen’s weakness is the primary factor that could push the central bank toward faster monetary tightening. Inflation has exceeded the BOJ’s 2% target for over three years, keeping pressure on policymakers to normalize rates. However, the timing will hinge on how the BOJ balances risks between economic slowdown and inflationary pressures.

After ending a decade of ultra-loose policy in March, the BOJ raised short-term rates to 0.25% in July 2024 and 0.5% in January 2025, both moves coming after political calls to curb excessive yen depreciation.

“The likelihood of an October rate hike has increased somewhat,” said Momma, now executive economist at Mizuho Research & Technologies, “though December remains the more probable timing.”