Citi flags risk of three BOJ hikes in 2026 if yen weakness persists. Watch USD/JPY 160

Citi's head of markets for Japan, Akira Hoshino, cautions that if yen weakness persists, the Bank of Japan could implement three interest rate hikes by 2026. Specifically, should USD/JPY exceed 160, a move in April to raise rates to 1% becomes more likely. This would effectively double the current policy level, necessitating a response from the BOJ to address the ongoing decline of the yen. The anticipated moves include an increase of 25bps in April, another in July, and potentially a third hike by year-end. The narrative poses that elevated USD/JPY levels—especially above 160—could act as a catalyst for quicker BOJ normalization, challenging the more gradual consensus view.