Citi flags risk of three BOJ hikes if yen stays weak.
Citi puts USD/JPY at the centre of the BOJ reaction function, with 160+ the level that could drag rate hikes forward.
Summary:
Citi’s Hoshino sees risk of three BOJ hikes if yen stays weak
USD/JPY > 160 could bring an April move to 1%
Another hike in July, with a possible third by year-end
Rationale: negative real rates are pressuring the yen
Faster BOJ path contrasts with more gradual consensus timing
Citigroup’s head of markets for Japan, Akira Hoshino, says the Bank of Japan could end up hiking rates three times in 2026 — effectively doubling the current policy level — if yen weakness persists, highlighting how the exchange rate is becoming a more central input into Japan’s policy debate.
In a Bloomberg (gated) interview, Hoshino argued the yen’s slide is fundamentally rooted in negative real interest rates, where yields remain below inflation, and that the BOJ may have little choice but to respond if it wants to change the currency’s direction. He outlined a scenario in which USD/JPY moving above ¥160 would raise the odds of an April hike, taking the overnight call rate up by 25bp to 1%, followed by another 25bp increase in July, and potentially a third move by year-end should the yen remain low.
That path is more hawkish than the consensus view, which generally expects the next BOJ move to be months away and often centers on mid-year timing rather than an April trigger. Reuters reporting has also flagged that some policymakers see scope to move sooner if the weak yen threatens to broaden inflation pressures, putting April “in play” even if the BOJ is widely expected to hold steady at its next meeting.
Hoshino also pointed to a potential flow channel: if Japanese yields (notably in the 10-year sector) rise to a point where they exceed inflation, domestic institutions may consider reallocating money from overseas back into Japanese fixed income. In his view, a lack of attractive onshore yield options has been one reason the weak yen has proven persistent.
Bottom line: Citi’s scenario frames USD/JPY levels — especially 160+ — as a practical catalyst for faster BOJ normalisation, even if the baseline remains gradual.
