Bank of Japan Seen Accelerating Hikes as Ex-Official Flags 2%+ Rate Risk

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A former Bank of Japan official has warned that the central bank could accelerate its rate increases this year, with borrowing costs potentially rising above 2% as the yen continues to weaken against the dollar.

Tsutomu Watanabe, an economics professor at the University of Tokyo and former BOJ staff member, said the pace of monetary tightening may increase, according to Bloomberg.

The BOJ’s benchmark interest rate is currently at 1% after recent hikes, while Japan’s 10-year government bond yield has moved above 2.8%, reaching its highest point in more than three decades, according to TradingView data.

Despite the shift toward tighter policy, the yen remains under pressure. The currency has declined roughly 60% against the U.S. dollar since the beginning of 2021, trading near 162.36 per dollar, and has lost around 3% so far this year.

Additional rate increases could help slow the yen’s decline and potentially support a rebound. However, the implications for bitcoin (BTC) and broader risk assets remain unclear.

A long-standing market argument suggests that a stronger yen could force investors to unwind carry trades built on years of low-cost borrowing. Such a reversal could impact assets that benefited from cheap yen financing, including government bonds, technology shares, and cryptocurrencies.

However, recent market behavior has complicated that view. Instead of moving in opposite directions, bitcoin and the yen have both weakened against the dollar, showing a notable correlation.

Meanwhile, some economists have warned that a rapid increase in rates could place further stress on Japan’s already challenging fiscal position.

With currency markets, interest rates, and global risk appetite all interacting, the potential outcome remains uncertain.