Former BOJ Governor Kuroda Supports Rate Hikes, yet Japanese Yen Remains Weak

TradingKey - A stronger US Dollar and surging US bond yields continue to weigh on the Japanese Yen, despite recent signals of support for more rate hikes from Japan and warnings from Finance Minister.

Year-to-date in 2025, the Yen has weakened overall. As of Jan. 8, the USD/JPY is at 158.165, the highest since July 2024, while the U.S. Dollar Index is at 108.86, the highest in more than two years.

[USD/JPY exchange rate chart, Source: TradingView]

Former Bank of Japan chief Haruhiko Kuroda recently said that the BOJ may continue to raise interest rates in the next few years, given that inflation is expected to reach its 2% target on a sustainable basis.

Kuroda believes that despite the expected rate hikes, Japan's economy will achieve growth exceeding 1% in 2025 and beyond as rising real wages underpin consumption.

Kuroda said the BOJ's basic stance of gradually raising rates with an eye on economic and price developments appears unchanged, and the positive wage-inflation cycle is continuing.

Current BOJ Governor Kazuo Ueda ended Haruhiko Kuroda's long-running loose policy in March last year, and then raised Japan's benchmark interest rate by 15 basis points to the current 0.25% in July. Ueda has repeatedly emphasized that if economic developments meet their expectations, the Bank of Japan will continue to raise interest rates.

On the 7th, Japan's Finance Minister Katsunobu Kato warned about the speculative yen, stating that there have been one-sided, sharp moves in the currency market recently.

Nonetheless, the yen remains weak and is approaching the 160 level that led to the Bank of Japan's intervention in the currency market last July.

According to the Nikkei News report, the yen's exchange rate against the U.S. dollar fell for four consecutive years in 2024, matching the record from 2012 to 2015 around the start of "Abenomics", and it is the longest streak since Japan shifted to a floating exchange rate system in 1973.

The US-Japan spread narrowing process is struggling, which may boost the Carry Trade. Sumitomo Mitsui Trust Bank said that if the market volatility becomes smooth, the restart of the yen carry trade is not impossible.