The weakening yen becomes a catalyst for inflation! Minutes from the Bank of Japan meeting directly indicate the urgency of raising interest rates.

Minutes from the Bank of Japan's January policy meeting show that as authorities closely monitor the impact of a weak yen on inflation, there is a growing recognition among decision-makers of the need for a timely rate hike. According to the minutes, one of the nine members of the Bank of Japan's Policy Board stated: "Given that addressing rising prices is Japan's top priority, the central bank should not spend too much time assessing the impact of raising policy rates and should instead seize the right moment to take the next step - hiking rates." This meeting minutes suggest that the Policy Board led by Bank of Japan Governor Haruhiko Kuroda may raise the benchmark interest rate at a pace faster than market consensus. The market generally expects the Bank of Japan to hike rates approximately every six months since its last move in December last year. The yen is clearly a key factor - the number of mentions of "weak yen" and "foreign exchange" in the minutes doubled compared to the previous policy meeting minutes. One member said, "The depreciation of the yen and the rise in long-term yields largely reflect fundamental factors such as inflation expectations. In this situation, from a monetary policy perspective, the only prescription is to raise policy rates in a timely and appropriate manner." At the January policy meeting, the Bank of Japan signaled a hawkish stance, exceeding economists' expectations in raising the inflation outlook, and there was an unexpected dissenting vote advocating for a second consecutive rate hike. At the post-meeting press conference, Kuroda noted the need to carefully examine the impact of a depreciating yen on potential inflation. Following the January meeting, institutions such as BNP Paribas and SMBC Nikko Securities have brought forward their expectations for the Bank of Japan's next policy adjustment to April. Even institutions that still insist on the next move possibly being in June or July are increasingly warning of the rising risks of an earlier policy adjustment amid a continuing weak yen. One member said, "If the yen further depreciates, the pace of decline in the Consumer Price Index (CPI) may slow down or even accelerate." Data shows that Japan's key inflation indicators rose to 3.1% last year, marking the fourth consecutive year that it has exceeded the Bank of Japan's 2% target, the longest continuous period since 1992. The Policy Board also discussed the impact of fiscal measures by Japanese Prime Minister Sanae Takaichi on inflation. Takaichi is set to hold snap elections for the House of Representatives on February 8. Investors will be watching how the election results could impact the Bank of Japan, as Takaichi, who is expected to win, is known for her support for monetary easing policies. At the recent Bank of Japan meeting, a Cabinet Office representative hinted at the need for caution, stating that the "extreme importance" of monetary policy lies in executing it in a way that helps achieve strong economic growth and stable inflation. The expectation of a weak yen is expected to remain a key factor supporting the necessity for a rate hike by the Bank of Japan and the government. Given the potential risk of the yen boosting inflation, Takaichi is widely believed to have abandoned her attempts to dissuade central bank officials from raising rates last December. Rising living costs have sparked public discontent, leading to significant setbacks for her Liberal Democratic Party in two elections before she took office in October last year. One member of the Bank of Japan Policy Board said, "While it cannot be said that the risks of the central bank lagging behind the situation will necessarily become more apparent, it is becoming increasingly important for the central bank to execute monetary policy in a cautious and timely manner."