BoJ’s Takata says central bank must hike rates mimbly after assessing financial conditions

Lallalit Srijandorn FXStreet

Bank of Japan (BoJ) board member Hajime Takata said on Wednesday that the central bank must conduct rate hikes nimbly after assessing accommodation in domestic financial conditions and developments. Takata added that it’s necessary to monitor long-term interest rate trends closely and maintain clear market communication.

Key quotes

Believe BoJ needs to conduct rate hikes nimbly after gauging the degree of accommodation in domestic financial conditions, in addition to examining developments overseas.

Necessary for BoJ to shift from the current stance of encouraging a rise in underlying inflation and to demonstrate to the market its determination to prevent upward deviations in prices.

Believe 2026 represents the start of a new phase, where rate hikes will not be carried out at a fixed pace.

Important to carefully monitor the risk that the divergence of monetary policy stances between Japan and other countries could bring about high volatility in FX markets.

Current situation of rising energy prices entails the risk of inflation overshooting the target.

Market reaction

At the time of writing, the USD/JPY pair is up 0.10% on the day at 160.35.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

GBP/USD weakens to two-week lows near 1.3520

GBP/USD trades on the back foot, returning to the low 1.3500s, or two-week troughs, on Tuesday. Cable’s bearish price action follows decent gains in the Greenback at the time when investors assess latest US data releases and the persistent uncertainty in the US-Iran crisis.

EUR/USD remains offered; breaks below 1.1600

EUR/USD now accelerates its daily correction, breaching below the key 1.1600 support level on Tuesday. The pair’s daily correction comes on the back of a decent bounce in the US Dollar despite disappointing US data releases and amid persistent geopolitical concerns.

Gold eyes $4,300 breakdown amid Fed hike bets, Iran risks, firm USD

Gold languishes near a two-and-a-half-week low, touched during the Asian session on Wednesday, awaiting a break below $4,300 before the next leg down. Escalating US-Iran tensions lift oil prices to a nearly six-week high and fuel inflation fears, reaffirming Fed rate-hike bets. This acts as a tailwind for the safe-haven US Dollar and undermines demand for the non-yielding bullion.

WTI advances to mid-$90.00s, fresh high since July 24 amid escalating US-Iran tensions

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – scales higher for the third straight day – also marking the fifth day of a positive move in the previous six – and climbs to a fresh high since July 24 during the Asian session on Wednesday.

Middle East war takes its toll on Gold prices

The US Dollar accelerates its advance against the precious metal in the American session on Tuesday, following news indicating United States forces launched attacks on Islamic Revolutionary Guard Corps targets in Iran, as reported by the US Central Command. Explosions were reported on Qeshm Island, around the Strait of Hormuz, and across southern Iran.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.