Citi Warns: BOJ May Hike Repeatedly as Yen Weakness Persists

The yen's slide isn't just a headache for tourists—it's flashing a red alert for monetary policy.

Citi analysts are sounding the alarm: the Bank of Japan might be forced into a series of interest rate hikes to defend its crumbling currency. This isn't about tweaking policy for growth anymore; it's a full-blown defense operation against a forex market that's lost all faith.

The Domino Effect of a Weak Yen

When a major currency like the yen tanks, central bankers don't just watch from the sidelines. Import prices skyrocket, inflation gets imported, and the economic playbook gets thrown out the window. The BOJ's famous ultra-loose policy? It starts looking less like stimulus and more like fuel on the fire.

Citi's warning cuts through the usual central bank ambiguity. They're not predicting a single, cautious move. They're flagging the risk of a cycle—back-to-back hikes that could rattle debt markets and send shockwaves through asset prices globally. It's the kind of pivot that makes traders dump bonds and recalculate every risk model in their arsenal.

Forget gradual normalization. This is crisis management.

The Finance Jab

Of course, this all assumes the BOJ can actually stick the landing—a bold assumption for an institution that's spent decades mastering the art of doing very little, very slowly. Sometimes, the market calls your bluff, and all you're left holding is a printing press and a prayer.

So watch that USD/JPY rate. Every tick higher isn't just a number on a screen; it's another nail in the coffin of easy money, and another reason for the BOJ to reach for the rate-hike lever. The era of free yen might be closing faster than anyone expected.

Inflation becomes a heated discussion among BoJ officials 

Hoshino’s insights on interest rates are supported by more than thirty years of specialized market knowledge. His insights covered important aspects of Japan’s monetary policy, including how exchange rates are treated as key predictors of this policy. 

On the other hand, reports highlighted that officials at the central bank have shifted their focus to the impact of the yen on inflation, as consumers experience high levels of frustration due to price hikes.

Analysts remained divided on the future direction of interest rates. Some anticipate that further rate increases are likely months away, while others believe they could occur sooner if the yen continues to decline sharply.

Even with these conflicting views, several economists assert that a rate hike will occur every six months, with most widely anticipating the next one to happen in July.

Similarly, many traders placed bets on their views of the situation in prediction markets, with results showing that a large number anticipated one rate increase in July. Apart from this, it was discovered that the likelihood of another hike in December had risen to 90% based on swap market pricing. 

Following interest rate predictions, Hoshino projected that the yen WOULD fluctuate between 150 and 165 against the dollar. Reports from Tokyo unveiled that the Japanese yen traded at 158.2 after hitting its lowest level in 18 months at 159.45 last week. Meanwhile, as the situation intensified, Hoshino hinted that institutions might shift their foreign investments into domestic fixed-income assets if key interest rates, such as 10-year bond yields, rise above inflation. 

Such a shift is crucial, as it offers significant benefits to Citigroup’s traders and salespeople in Tokyo, who can help with this repatriation process.

“Even though investors want to bring money back to Japan, there haven’t been many investment options available,” Hoshino explained. “This is one reason why the weak yen has continued for so long.” 

Hoshino aims to strike opportunities from Japan’s deal-making 

Being Citigroup’s Head of Markets in Japan, Hoshino assumed this role on March 25, 2025, after spending over five years serving as the head of foreign exchange at the firm’s local securities branch.

After financial reports were collected last year, it was discovered that Citigroup’s markets division in New York accounted for about 25% of the firm’s total revenue.

With these incredible results in place, Hoshino made clear his intention to enhance collaboration between his team and the investment banking group to maximize opportunities from Japan’s soaring dealmaking.

He also stated that he aims to ensure that some members of his team join investment bankers in advising clients on suitable fundraising strategies during initial deal talks.

“Our goal is to align supply and demand as early as possible in a transaction,” Hoshino said. “This way, the investment banking team can provide clients with the most effective financing solutions.” 

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