Weak Yen Puts Bank of Japan's Slow Rate Hikes on Notice

Alice Winters

Data Interpretation

Political

Forex

Remarks of Officials

Economic

Central Bank

Summary:

Japan's central bank faces mounting pressure as a weakening yen, an unexpected X-factor, could force it to accelerate its slow rate hike strategy sooner than anticipated, defying economists' baseline forecasts.

Most economists watching the Bank of Japan believe Governor Kazuo Ueda is raising interest rates too slowly, with baseline forecasts placing the next hike several months away. However, a falling yen is emerging as a critical X-factor that could force the central bank to act much sooner.

A Bloomberg survey of 52 economists highlights this tension. A weaker currency threatens to amplify price pressures in Japan, where inflation has already averaged above the BOJ's 2% target for the last four years.

Economists See BOJ Lagging on Normalization

Despite the BOJ raising its benchmark rate to a three-decade high on December 19, the consensus is that its policy normalization, which began in March 2024, is not keeping pace.

More than 60% of economists surveyed described the central bank's rate-hike cycle as either too slow or on the slow side. In contrast, only 35% viewed the cadence as appropriate. Looking ahead, about 68% of respondents expect the BOJ to settle into a rhythm of raising rates roughly once every six months.

The Yen: The Wild Card Forcing the BOJ's Hand

The Japanese yen is the single biggest variable that could upend the BOJ's cautious timeline. Three-quarters of the poll respondents said they see a growing risk of yen weakness prompting an earlier-than-expected rate increase.

"I expect the BOJ to wait about six months before its next rate hike," said Junki Iwahashi, an economist at Sumitomo Mitsui Trust Bank. "However, that timeline could be brought forward if the yen weakens beyond 160 per dollar, pushing up inflation expectations."

As of Friday morning in Tokyo, the yen was trading around 158.50 per dollar, just 2% shy of the low it hit in July 2024—its weakest level since 1986. The currency's decline has accelerated since October, when Prime Minister Sanae Takaichi, a long-time advocate for monetary and fiscal stimulus, took office.

Recent pressure has intensified amid news that Takaichi is planning a snap election next month. Market speculation is growing that a victory would give her a stronger mandate to implement expansionary fiscal measures, further weighing on the yen.

"The number of rate hikes will be largely determined by exchange-rate movements," noted Hiroshi Namioka, chief strategist at T&D Asset Management Co. "As long as the yen continues to weaken or remains persistently weak, the BOJ is likely to continue raising rates."

Survey Breakdown: When Will the Next Hike Arrive?

While the future pace is uncertain, the immediate outlook is clear. All 52 economists predict policymakers will keep the benchmark rate unchanged at 0.75% during the upcoming meeting on January 22-23.

For the next rate hike, the consensus points to the summer:

• July: The most popular choice, selected by 48% of economists.

• April & June: Each month was chosen by 17% of respondents.

Economic Outlook and Rising Terminal Rate

Reflecting expectations of a more active BOJ, the median projection for the terminal rate—the point where economists expect the hiking cycle to end—has climbed to 1.5%. This marks the highest estimate since the survey began asking the question at the end of 2023.

A key focus of next week's policy meeting will be the BOJ's updated quarterly economic outlook. This report will be the first to incorporate the economic stimulus package Takaichi's government compiled in November, offering potential clues about the central bank's stance.

Economists' median forecasts suggest the BOJ will maintain its current inflation outlook of 2.7% for the fiscal year ending in March and 1.8% for the following year. Meanwhile, growth forecasts are expected to see minor upward revisions to 0.9% and 0.8% for this fiscal year and the next, partly due to the stimulus.

Takeshi Minami, chief economist at Norinchukin Research Institute, argued that the central bank must shift gears. "In managing monetary policy in 2026, as the underlying inflation rate approaches 2%, the BOJ will be required to move away from its traditionally slow pace of rate hikes," he said. "Given current concerns about upside risks to inflation, it remains essential for the BOJ to maintain a 'fighting stance' that signals its willingness to continue raising rates."

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Stocks

Ford Motor Co. is in talks with China's BYD Co. about potentially supplying batteries for hybrid vehicles to the American automaker's overseas factories, according to people familiar with the negotiations.

BYD, the world's top seller of electric vehicles, is among several battery suppliers Ford is talking to, said the people, who asked not to be identified revealing internal discussions. No deal is imminent, they said.

The discussions are aimed at supplying Ford's international factories with batteries for the automaker's expanding line of hybrids, the people said.

The hybrids built in Ford's overseas factories would be exported worldwide, including to the US, the people said. But most hybrids Ford sells in the US would continue to come from factories in North America.

BYD didn't immediately respond to a request for comment. A spokesperson for Ford said the automaker "talks to lots of companies about many things. We don't comment on rumors or speculation about our business."

Ford has sourced batteries from BYD since 2020 for its joint-venture Chinese factories with state-owned Changan Automobile Co.

Hybrid sales have grown worldwide as the market for pure electric vehicles has slowed. Ford is ramping up hybrid production and has plans to roll out more gas-electric models.

At the Detroit Auto Show earlier this week, the American automaker revealed plans to introduce a plug-in hybrid version of its Bronco sport utility vehicle in China. It will utilize extended-range electric vehicle, or EREV, technology, where an internal combustion engine acts as an on-board generator to recharge the battery when the car is in use.

Chief Executive Officer Jim Farley told reporters on the sidelines of the auto show that there are no plans yet to bring the EREV Bronco to the US, but added, "you should expect a lot of exciting powertrains for Bronco."

"We're really accelerating our investment in EREVs and hybrids," Farley said. "We've been really successful with the F-150 hybrid. Now we want to go across the range with hybrids and EREVs."

News of Ford's talks with BYD, first reported by the Wall Street Journal, sent ADRs of the Chinese automaker up 3.6% Thursday. Ford shares fell less than 1% to close at $13.81.

The potential deal drew immediate political blowback, with House China Panel Chair John Moolenaar saying Ford "should work with our allies, not our adversaries."

"If reports that Ford is in discussions to potentially partner with a second Chinese battery company were to come true, it would diminish Ford's status as an iconic American company," Moolenaar said in an emailed statement.

Ford also has a battery deal with China's Contemporary Amperex Technology Co. Ltd.

Source: Bloomberg Europe

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Justin

Political

Economic

South African authorities shut Kruger National Park on Thursday to day visitors, after several rivers that run through it burst their banks as the result of days of heavy rains, they said.

Tourists already staying at lodges inside the park were permitted to stay, apart from areas around the Letaba river that were evacuated, South African National Parks said.

Reuters TV footage showed vast areas of the park submerged by fast-flowing water, with treetops poking out of the floods and hippos swimming between them. Signs announced that roads were closed.

Flooding in southeastern Africa has become more frequent and severe as climate change makes storms in the adjacent Indian Ocean more powerful.

"This water's moving very fast," Kruger spokesperson Reynold Thakhuli told Reuters on the scene, next to a road that had been closed and was half submerged by running water, adding that authorities had shut the Phalaborwa gate, near Kruger airport.

"We'll close it for 24 hours and monitor what is happening."

He added: "we're not really worried about the animals," because they tended to move to higher ground in such situations.

South African tourist Gerhard Ackerman sat on the veranda of his lodge, overlooking the floods with a drink in his hand.

"It's God's way of putting water back into the earth," he said. "We're enjoying it."

Source: Reuters

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Samantha Luan

Political

Economic

The United States stands by the "brave people of Iran," and President Donald Trump "has made it clear all options are on the table to stop the slaughter," U.S. Ambassador to the United Nations Mike Waltz told the U.N. Security Council on Thursday.

Trump has repeatedly threatened to intervene in support of protesters in Iran, where thousands of people have been reported killed in a crackdown on the unrest against clerical rule.

But on Thursday, Trump adopted a wait‑and‑see posture, saying he had been told that the killings were easing and that he believed there was no current plan for large-scale executions.

"President Trump is a man of action, not endless talk like we see at the United Nations. He has made it clear all options are on the table to stop the slaughter," Waltz told the Security Council meeting, which Washington had requested.

He dismissed allegations by Iran that the protests are "a foreign plot to give a precursor to military action."

"Everyone in the world needs to know that the regime is weaker than ever before, and therefore is putting forward this lie because of the power of the Iranian people in the streets. They are afraid. They're afraid of their own people," Waltz said.

United Nations Secretary-General Antonio Guterres urges "maximum restraint at this sensitive moment and calls on all actors to refrain from any actions that could lead to further loss of life or ignite a wider regional escalation," senior U.N. official Martha Pobee told the council.

Source: Reuters

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Gerik

Economic

Baseline Outlook And Policy Continuity

The European Central Bank is not preparing to reopen discussions on interest rate changes in the near future if the euro area economy continues to evolve in line with current expectations, according to ECB chief economist Philip Lane. Speaking in an interview published on January 16, Lane emphasized that the prevailing interest rate level is considered appropriate for the coming years, provided the baseline scenario holds.

The ECB has kept rates unchanged since concluding a rapid easing cycle in June, and policymakers signaled in December that further adjustments were not imminent. This stance reflects economic growth that has proven more resilient than previously anticipated and inflation that appears to have stabilized close to the ECB’s 2 percent target over the medium term. The relationship between steady policy and stable inflation here reflects a correlation rather than a guaranteed outcome, contingent on broader macroeconomic conditions remaining supportive.

External Monetary Shocks As A Key Risk Factor

Lane identified potential external shocks as the main threat to this relatively benign outlook, particularly developments in the United States. He pointed to the risk that political pressure could lead the Federal Reserve to diverge from its mandate, especially if interest rates were pushed down more aggressively than warranted by underlying inflation dynamics.

Lane noted that it would pose economic difficulties for the euro area if US inflation failed to return to target or if tighter financial conditions in the United States translated into a higher term premium globally. In this context, spillovers from US financial markets to the euro area would reflect a causal transmission channel through capital flows and risk pricing, rather than a coincidental movement. He also warned that a reassessment of the dollar’s future role in the international system could act as a financial shock to the euro, further complicating the ECB’s policy environment.

Dollar Dynamics And European Competitiveness

The euro strengthened sharply against the US dollar last year as investors reduced exposure to dollar assets due to policy uncertainty. This currency movement coincided with weaker export competitiveness for European firms, particularly at a time when low cost Chinese goods were already exerting pressure in key global markets. While the timing suggests a correlation between exchange rate appreciation and export challenges, Lane did not frame the stronger euro as the sole driver of competitiveness issues, which also reflect structural factors within European industry.

Despite these challenges, Lane expressed confidence in the Federal Reserve’s institutional framework. Unlike most central banks that focus solely on price stability, the Fed operates under a dual mandate that includes both maximum employment and stable prices, defined as 2 percent inflation. Lane suggested that this structure still provides a credible anchor for policy, even as political debates intensify.

Market Expectations And Growth Prospects

At the turn of the year, financial markets briefly priced in the possibility of a euro area rate hike toward the end of 2026. That expectation has since faded, with investors now anticipating the ECB deposit rate to remain at 2 percent throughout this year. Lane reiterated that, under current conditions, there is no near term debate about raising rates, while also stressing that the ECB stands ready to respond if conditions evolve in either direction.

Looking ahead, Lane argued that the 21 nation euro zone is likely to experience a stronger cyclical recovery this year and next. This improvement reflects normal economic momentum following recent shocks, indicating a cyclical relationship rather than a structural transformation. At the same time, he cautioned that potential growth remains low, implying that deeper structural reforms will be necessary to achieve sustainably higher growth beyond the current recovery phase.

Source: Reuters

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Justin

Political

Economic

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks during an interview with Reuters, amid Russia's attack on Ukraine, in Kyiv, Ukraine January 15, 2026. REUTERS/Valentyn Ogirenko

International Monetary Fund Managing Director Kristalina Georgieva told Reuters on Thursday that the IMF is ready to ‌support Venezuela but needs its major shareholders to recognize the country's leadership and those authorities to seek IMF assistance.

Georgieva, in an ‌interview with Reuters during a visit to Ukraine, said that despite almost no communication with ousted President Nicolas Maduro's regime ‍since 2019, the Fund has been keeping "a watchful eye on the economy" in Venezuela to try ⁠to assess its trajectory.

"So we have ‍a good understanding, and we are ready," Georgieva ‌said. "If ‌there is an opportunity to support the people of Venezuela, you can be sure the Fund will be there."

She said ⁠that she ⁠was concerned that 8 million Venezuelans have fled the country in recent years - a greater portion of the ‍population than Ukraine's outward migration due to Russia's invasion - dramatically shrinking its economy.

"Inflation is picking up. We worry about hyperinflation ‍re-emerging in Venezuela," Georgieva said.

Source: Reuters

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Winkelmann

Political

Economic

A senior figure in the armed wing of Hamas, a Hamas policeman, and a senior figure in the militant group Islamic Jihad were among at least ten people killed on Thursday in a series of Israeli strikes across Gaza, according to local sources.

Local medics and residents reported the deaths of senior Islamic Jihad operative Ashraf Al-Khatib in Nuseirat and a Hamas policeman in Gaza city. A Hamas source said that local commander Mohammed Al-Holy was killed in Deir al-Balah, earlier in the day.

The Israeli military did not immediately respond to requests for comment on the incident.

Hamas condemned the strikes on the Al-Holy family, in a statement that did not mention Mohammed or his role in the group. It accused Israel of violating the ceasefire deal in place since October, and attempting to reignite the conflict.

Health officials said the deaths included a 16-year-old.

The Israeli strikes come the day after the United States announced the start of the ceasefire agreement's second phase on Wednesday.

Israel and Hamas have traded blame for violations of the ceasefire and remain far apart from each other on key issues.

More than 400 Palestinians and three Israeli soldiers have been reported killed since the ceasefire took effect in October.

Israel has razed buildings and ordered residents out of more than half of Gaza where its troops remain. Nearly all of the territory's more than 2 million people now live in makeshift homes or damaged buildings in a sliver of territory where Israeli troops have withdrawn and Hamas has reasserted control.

The United Nations children's agency said on Tuesday that over 100 children have been killed in Gaza since the ceasefire, including victims of drone and quadcopter attacks.

Israel launched its operations in Gaza in the wake of an attack by Hamas-led fighters in October 2023 which killed 1,200 people, according to Israeli tallies. Israel's assault has killed 71,000 people, according to health authorities in the strip, and left much of Gaza in ruins.