Yen Gains After Three BOJ Board Members Dissent From Rate Hold

Japanese 10,000-yen banknotes arranged in Kyoto, Japan, on Tuesday, Jan. 27, 2026. The yen is now hovering around its strongest level since October after comments from Japanese officials fueled speculation that the government may intervene in the market to prevent the currency from resuming its slide. Photographer: Kentaro Takahashi/Bloomberg Photo by Kentaro Takahashi /Bloomberg

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(Bloomberg) — The yen strengthened against the dollar after the Bank of Japan raised its inflation forecast and three policymakers backed a rate hike.

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Japan’s currency strengthened as much as 0.3% to 158.99 against the greenback, while bond futures and the exporter-heavy Nikkei 225 fell. The BOJ kept its benchmark rate unchanged, with the number of board members in favor of a rate hike increasing to three, compared with one at its March meeting.

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The outcome highlights a growing hawkish tilt within the board, and underscores how uncertainty over the war in Iran and the resulting surge in energy prices are clouding the economic outlook and becoming a bigger concern for the BOJ as it balances inflation risks against growth.

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“The BOJ’s hawkish hold today — marked by a rise in dissents to three out of nine board members — should be seen as much about currency defense as inflation control, signaling growing intolerance for further yen weakness,” said Masahiko Loo, a senior fixed-income strategist at State Street Investment Management.

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Japan’s central bank also raised its forecast for core inflation to 2.8% for this fiscal year and revised down its economic growth forecast to 0.5%.

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The focus will shift to Governor Kazuo Ueda’s press conference at 3:30 p.m. local time for clues on how soon policymakers may consider further tightening. Any hawkish signs from Ueda may pull the yen further away from the 160-per-dollar level, not far from where the authorities last intervened in 2024. 

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“The key point will be how much the views of Governor Ueda and the three dissenting members differ,” said Rinto Maruyama, senior FX and rates strategist at SMBC Nikko Securities Inc. “If it becomes clear that the governor’s side shares similar views, but decided to hold off on a rate hike this time, the likelihood of a rate hike in June will increase, and there will likely be further room for the yen to strengthen.”

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The chance of a rate hike by June increased to 74%, from about 62% before the BOJ decision, according to overnight index swaps. A 25-basis-point increase is now almost fully priced in by July.

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Protracted US-Iran tensions have kept investors on edge and reduced expectations for near-term BOJ rate hike. Tehran’s proposal of an interim deal to reopen the key shipping passage has done little to dispel uncertainty following stalled peace talks.

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The backdrop has supported the dollar and kept oil prices elevated, stoking inflation in Japan while raising downside risks to growth.

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Japan’s Minister of Finance Satsuki Katayama on Tuesday said authorities are standing by to respond to forex moves as needed around the clock, as Tokyo remains on high alert over speculative moves that are weighing on the currency.

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—With assistance from Mia Glass.

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