Sinking yen and robust economy support BOJ case for earlier rate hike

Until recently, economists generally saw the Bank of Japan hiking rates about every six months, but now markets are pricing in a solid chance that another increase could come by October. The Bank of Japan has an increasingly strong case to consider an early rate hike as business activity remains robust and the tumbling yen threatens to spur inflation above its price target. Until recently, economists generally saw the central bank hiking rates about every six months, which would put the next move in December. But now markets are pricing in a solid chance — over 60% — that another increase could come by October. That could heighten tension between the bank and the government — as a key factor weighing on the currency is recent signaling from Prime Minister Sanae Takaichi indicating her preference for prolonged monetary easing. Speculation over the administration’s resistance to hikes has helped push the yen to its weakest level against the dollar since 1986. With bets rising on Federal Reserve tightening, some traders have discussed the possibility of the currency weakening toward ¥200 per dollar.