Suihoy: External pressures may push or prompt the Bank of Japan to further raise interest rates.

On January 19, an article in the Nikkei newspaper pointed out that speculation about US foreign exchange policy may be one of the factors behind the sudden inclination of the Bank of Japan to raise interest rates in January rather than March, and the apparent acceptance of this move by the Japanese government. Yasunari Ueno, chief market economist at Mizuho, said that in other words, the Suga government may have good reason to believe that the Bank of Japan raising interest rates in January aligns with the US government's desire to not see the yen depreciate rapidly, thus paving the way for the first meeting between Suga and Trump. This is because all signs indicate that Scott Bessent, the new US Treasury Secretary, supports and welcomes the normalization of Japanese monetary policy. While it is certainly inappropriate for US-Japan diplomatic relations to be the sole determining factor in the Bank of Japan's ultimate decision, it is not hard to imagine that both the Japanese government and central bank are now faced with a consideration of "external pressures." Mizuho's own view is that given the current policy rate levels do not seem to be strongly stimulating the real economy, there is no urgent need for the Bank of Japan to raise interest rates, but it must at least acknowledge that "external pressures" could indeed serve as a driving force for further "normalization" of Japanese monetary policy. Mizuho pointed out that on January 16, Bessent stated at a Senate Finance Committee hearing that Trump's plan to impose high tariffs aims to combat unfair trade practices, increase federal revenues, and increase US negotiating leverage (including in non-trade issues). He also claimed that if a 10% tariff were imposed, the dollar could appreciate by 4%, "so that the 10% tariff would not be passed on to consumers." He also stated, "It must be ensured that the dollar remains the world's reserve currency." In conclusion, things may be at least a bit more complicated than they initially appear. If Bessent does indeed support the normalization of Japanese monetary policy and the Bank of Japan further increases interest rates accordingly, the USD/JPY exchange rate is likely to weaken in a manner welcomed by Trump, as he has previously described the dollar as "too strong." However, at the same time, a stronger dollar could be the best way to prevent Trump's version 2.0 tariffs from burdening US consumers too heavily.