Economists: A weak yen clears the path for a December rate hike by the Bank of Japan; if the downward trend continues, another rate hike is likely.

According to an analysis by economist Alicia Garcia Herrero, as reported by Mars Finance on December 17th, the continued weakness of the yen is becoming a decisive factor in the Bank of Japan and the Japanese government's agreement this month to support the long-awaited interest rate hike. Despite concerns about US tariffs and broader geopolitical risks, the Japanese economy has proven more resilient than expected. Short-, medium-, and long-term inflation expectations remain above the Bank of Japan's 2% target, strengthening the case for further policy normalization. Food prices have pushed up core inflation, and the yen's continued weakness against the dollar around 155 could exacerbate imported inflation pressures. Herrero expects the Bank of Japan to raise its policy rate by 25 basis points to 0.75% at its meeting on December 19th. Looking ahead, if the yen fails to stabilize after the rate hike and continues to drag down real income, the Japanese government may also accept further tightening of policy, potentially opening the door to another 25 basis point rate hike early next year. (Jinshi)