The Bank of Japan (BoJ) is expected to leave its benchmark interest rate unchanged at 0.75% after concluding its two-day monetary policy meeting next Friday.
The Japanese central bank hiked rates to its highest level in three decades in December, and will likely stand pat on Friday to better assess the economic consequences of previous rate hikes.
BoJ Governor Kazuo Ueda is expected to reiterate the bank’s commitment to further monetary policy normalisation. In that sense, investors will analyze Ueda’s press conference with particular attention for further insight into the timing and the scope of the bank’s tightening cycle.
What to expect from the BoJ interest rate decision?
The BoJ is widely expected to keep interest rates unchanged in January and hint at further monetary policy tightening if the economy evolves in line with the bank’s projections.
In December, the bank’s monetary policy committee approved a 25 basis points rate hike to the current 0.75% level, and the minutes of the meeting revealed that some policymakers see the need for further monetary tightening, as real interest rates remain deeply negative, taking inflation into account.
A back-to-back rate hike, however, is completely discarded by the market. More so after Prime Minister Sanae Takaichi’s unexpected call for snap elections earlier this week and her plans to suspend taxes on food and beverages for two years, aiming to help households coping wth the rising inflationary trends.
It is still unclear what impact these actions will have on the central bank’s monetary policy, but the BoJ plans to gradually normalize its monetary policy and remove the monetary stimulus measures without damaging economic growth. Against this backdrop, the bank will opt to wait until the political scenario clarifies and the consequences of previous rate hikes manifest before tightening its monetary policy further.
The Yen, on the other hand, has been depreciating steadily since market speculation about a snap election arose. It will be interesting to see whether JPY weakness has prompted the central bank to adopt a less ambivalent stance towards monetary tightening.
How could the Bank of Japan’s monetary policy decision affect USD/JPY?
Investors are fully pricing a BoJ rate pause on Friday, but the bank will need to make a clear commitment towards a further monetary tightening cycle to stem the current Yen depreciation.
Yen bears have taken a breather over the last few days, favoured by broad-based US Dollar weakness, amid the European Union (EU)-US trade rift after President Donald Trump’s threats to annex Greenland. USD/JPY, however, remains about 0.7% up on the year and relatively close to the 18-month high near 159.50 hit last week.
Investors fear that Prime Minister Takaichi might gain a stronger parliamentary support after the elections to expand her policy of big spending and lower taxes, adding pressure on the country’s strained public finances. This has sent the Yen tumbling and long-term Japanese yields rallying to record highs, amid fears of an upcoming fiscal crisis.
Recent comments by BoJ Governor Ueda have reaffirmed the bank’s gradual monetary-tightening rhetoric, indicating that Japan is moving toward a more durable inflation regime, with a mechanism in place for wages and prices to rise in tandem. The Yen will need clear signs of rate hikes ahead to extend a hitherto fragile recovery.
From a technical perspective, Guillermo Alcalá, analyst at FXStreet, sees the USD/JPY pair on a bearish correction, with key support above the 157.40 area: “The pair has retreated from highs, but Yen bulls would need to break the support area between 157.40 and 157,60, to cancel the near-term bullish structure and aim for the early January lows, around 156.20.”
A hesitant BoJ message would disappoint markets and undermine support for the Yen. In that case, Alcalá sees the pair reaching fresh long.-term highs: “Technical indicators are turning positive. The 4-Hour RGI has bounced up from the 50 line, highlighting a stronger bullish momentum. The pair is testing resistance at 158.70 (January 16 high) at the time of writing, which is the last barrier before the 18-month high near 159.50.”
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.89% | -0.56% | 0.65% | -0.64% | -1.92% | -1.97% | -0.82% | |
| EUR | 0.89% | 0.33% | 1.52% | 0.25% | -1.06% | -1.08% | 0.07% | |
| GBP | 0.56% | -0.33% | 0.96% | -0.08% | -1.38% | -1.41% | -0.27% | |
| JPY | -0.65% | -1.52% | -0.96% | -1.26% | -2.52% | -2.56% | -1.43% | |
| CAD | 0.64% | -0.25% | 0.08% | 1.26% | -1.26% | -1.32% | -0.19% | |
| AUD | 1.92% | 1.06% | 1.38% | 2.52% | 1.26% | -0.04% | 1.12% | |
| NZD | 1.97% | 1.08% | 1.41% | 2.56% | 1.32% | 0.04% | 1.17% | |
| CHF | 0.82% | -0.07% | 0.27% | 1.43% | 0.19% | -1.12% | -1.17% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Economic Indicator
BoJ Press Conference
The Bank of Japan (BoJ) holds a press conference at the end of each one of its eight scheduled policy meetings. At the press conference the Governor of the BoJ communicates with media representatives and investors regarding monetary policy. The Governor talks about the factors that affect the most recent interest rate decision, the overall economic outlook, inflation, and clues regarding future monetary policy. Hawkish comments tend to boost the Japanese Yen (JPY), while a dovish message tends to weaken it.
Read more.
Next release:
Fri Jan 23, 2026 06:30
Frequency:
Irregular
Consensus:
–
Previous:
–
Source:
Bank of Japan
Read the full article here