All 52 economists surveyed by Bloomberg see an unchanged outcome on Friday after policymakers raised their overnight interest rate last month to 0.75%, the highest in 30 years.
While that move further narrowed the gap in rates with the US, it has done little to stop downward pressure on the currency.
That means governor Kazuo Ueda will need to tread carefully during a post-decision press conference to ensure that the widely expected outcome doesn’t trigger another yen selloff.
He’ll have to make clear that rates will keep going up, without boxing himself into an early move.
If he sticks too passively to existing language, yen bears may try to push their luck further.
Ueda has plenty of reasons to lift borrowing costs again. Data on Friday are set to show Japan’s inflation has averaged above the 2% target for four straight calendar years, the latest sign that price growth is embedded into the economy.
Continued yen weakness, partly caused by rates that are still deeply negative in real terms, could also start to give inflation too much momentum, leaving the BOJ behind the curve in controlling it.
Nearly 60% of surveyed economists already think the central bank has fallen behind.
It’s a view shared by US treasury secretary Scott Bessent, who didn’t miss a chance to again mention the need for “sound formulation and communication of monetary policy” by Japan after a recent discussion of currency volatility with finance minister Satsuki Katayama in Washington.
While 68% of polled BOJ watchers see one rate hike every six months or so, a pace that would place the next move in June or July, three quarters see the yen as a risk that could hasten the next move.
That view appears to be gaining traction at the BOJ, too. While officials don’t have a preset course for rates, further yen weakness that fuels inflation could prompt them to move earlier, according to people familiar with the matter.
One factor that appears to have dislodged the exchange rate is the emergence of Prime Minister Sanae Takaichi, a known critic of BOJ hiking.
Her plan for a snap election as soon as next month has added to downward pressure on the yen, and market players are betting on a win that would giving her more room to spend freely and slow down BOJ normalisation efforts.
For Ueda, the early election is an unwanted distraction that will add to the difficulty of calibrating his post-meeting remarks to avoid a knee-jerk reaction in markets.
What Bloomberg economics says:
“We see the next hike in July. With Prime Minister Takaichi looking poised to call a snap election, we expect governor Ueda to play his cards close, sticking to recent guidance to avoid inviting any unwanted attention.
“He’ll probably bat down any questions on the yen, pointing out the government calls the shots on exchange rates,” Taro Kimura, senior economist said.
Elsewhere, gross domestic product (GDP) and price data in the US, purchasing manager indexes from around the world, UK inflation and a raft of Chinese numbers will be among the highlights.
A packed week will also feature the World Economic Forum’s annual meetings in the Swiss mountain resort of Davos.
Click here for what happened in the past week, and below is our wrap of what’s coming up in the global economy.
Asia
Central banks take centre stage in Asia, with the BOJ the marquee event and policy settings scheduled elsewhere in the region too.
Chinese banks are expected to hold loan prime rates steady on Tuesday.
Indonesia’s central bank meets on Wednesday, with rates widely expected to be kept at 4.75%.
Malaysia sets borrowing costs on Thursday, with the overnight policy rate also expected to be maintained, keeping the focus on guidance and how policymakers frame the external environment heading into the new year.
New economic data will fill in the contours of the growth picture once the policy dust settles.
In China, in the wake of Thursday’s signal that there’s room for further easing, Monday’s data dump – including fourth-quarter (Q4) GDP, retail sales, industrial production and property indicators – will anchor the week.
Taiwan publishes export orders on Tuesday, offering another read on the global electronics cycle.
Japan has trade figures on Thursday followed by CPI on Friday, ahead of the BOJ.
In Australia, Thursday’s jobs report is the key domestic input as investors gauge whether employment conditions are cooling cleanly or remain tight.
Also on Thursday, South Korea publishes Q4 GDP.
New Zealand’s CPI report on Friday lands after aggressive rate cuts through 2025.
Rounding out the region, India’s PMIs Friday offer a timely snapshot of momentum while a run of Asean data adds color on regional conditions: the Philippines releases balance-of-payments figures on Monday, Malaysia publishes CPI and trade on Tuesday, Thailand reports car sales during the week, and Singapore closes with CPI on Friday.