Former Bank of Japan Governor Haruhiko Kuroda said the central bank should keep moving monetary policy towards normal settings. He said a rate rise in April would be the normal course. He said a US-Iran war would speed up interest rate rises. He said the Bank of Japan should not pause the normalisation process.

BoJ Normalisation Outlook

Kuroda said there would be no problem with raising rates 3-4 times to reach around 1.50% in 2027. The Japanese Yen showed little reaction and USD/JPY was marginally higher near 160.00. The Bank of Japan is Japan’s central bank and sets monetary policy. It aims for price stability, with an inflation target of around 2%. In 2013, it started an ultra-loose policy using Quantitative and Qualitative Easing to buy assets such as government and corporate bonds. In 2016, it added negative interest rates and controlled the 10-year government bond yield, then lifted rates in March 2024. Loose policy weakened the Yen, with the move stronger in 2022 and 2023 due to policy gaps with other major central banks. The trend partly reversed in 2024 after the shift away from the ultra-loose stance.

Implications For The Yen

Inflation rose above 2% after a weaker Yen and higher global energy prices. Expectations of rising wages also supported the change. Comments from a former Bank of Japan governor suggest the central bank should consider an interest rate hike as soon as April. This view reinforces the idea that the path of monetary policy normalization, which began back in 2024, is set to continue. This puts the BoJ’s upcoming meetings into sharp focus for anyone with exposure to the Japanese Yen. These remarks align with recent domestic data that supports further tightening. Japan’s February 2026 core Consumer Price Index (CPI) came in at 2.3%, remaining stubbornly above the bank’s 2% target for another month. Furthermore, preliminary results from the 2026 “Shunto” spring wage negotiations indicate an average pay increase of around 4.1%, providing the demand-side inflation pressure the BoJ has been looking for. Despite this hawkish sentiment, the Yen remains weak, with the USD/JPY exchange rate holding near the 160.00 level. This shows that the wide interest rate differential between Japan and the United States continues to be the dominant driver for currency traders. Even with a potential BoJ hike, US rates remain significantly higher, encouraging carry trades that weigh on the Yen. For derivative traders, this signals a potential increase in currency volatility in the coming weeks. Options pricing will likely start reflecting higher odds of a move around the BoJ’s April meeting, making strategies like straddles or strangles more interesting. The key question is whether an actual rate hike would be enough to reverse the Yen’s weakness or if it would be a “sell the fact” event. Looking back, we saw similar dynamics following the initial policy shifts in 2024 and 2025, where the Yen failed to sustain any significant strength. The long-term view that rates could reach around 1.50% by 2027 suggests a very gradual process. This implies that while short-term volatility is likely, the overarching trend of Yen weakness driven by rate differentials may persist. Create your live VT Markets account and start trading now.

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