Toru Fujioka

Confidence among Japan’s large manufacturers rose to the highest level since 2018 and inflation expectations climbed, supporting the Bank of Japan’s stance to keep raising interest rates.

Confidence among Japan's large manufacturers rose to the highest level since 2018 and inflation expectations climbed, supporting the Bank of Japan's stance to keep raising interest rates.

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.

Prime Minister Sanae Takaichi has indicated her preference for monetary easing, helping push the yen to its weakest level against the dollar since 1986.

The yen should be as much as 20% stronger than it is — around 130 per dollar, a former top foreign exchange official in Japan said, pushing back against those speculating that the currency might continue its slide.

Japan’s government may tweak a reference to monetary policy in its annual policy agenda to avoid giving the appearance it is putting pressure on the central bank, the Asahi newspaper reported.

Japan’s bank lending expanded at the fastest pace since the Covid pandemic, suggesting credit is still accessible and the Bank of Japan has room to keep raising interest rates.

The draft of the agenda is seen as a key driver for yen weakness and pushing bond yields higher.

The Bank of Japan may pick up the pace of its rate hikes late this year and eventually push the benchmark above 2% as it races to rein in inflation, a former central bank official said.

With speculation simmering about how high the Bank of Japan will raise interest rates and how quickly, newly released transcripts from a decade ago show the depth of division within the central bank ahead of its controversial decision to adopt a negative policy rate, a move that marked the lowest point for borrowing costs.