Citi is forecasting a 25 basis-point increase in the Bank of Japan's policy rate at next week’s meeting, the firm said on Tuesday. The investment bank set out two main drivers for the expected move: the USD/JPY exchange rate has once again moved above ¥160 per dollar, and developments in the external environment could add further downward pressure on the yen.
The firm noted that three members of the BoJ's board dissented at the April meeting, and added that several officials - including BoJ Governor Ueda - have since indicated a readiness to raise rates. Taken together, these signals underpin Citi's view that a near-term tightening is likely.
Citi anticipates that rate increases will continue at a cadence of about one hike every six months. The bank projects the policy rate will reach a terminal level of 1.5% in June 2027.
Within its monitoring priorities, Citi said it will pay close attention to the voting pattern of board member Asada. The firm described current market pricing as fair, implying that markets already reflect much of the expected tightening path.
On the issue of quantitative tightening, Citi said it does not expect any decisions related to QT to have a material impact on market pricing. That view suggests the bank sees limited incremental market reaction from balance sheet adjustments, at least in the near term.
The combination of a revived USD/JPY move above the ¥160 mark and signals from BoJ officials form the factual basis for Citi's rate call. The forecasted pace of hikes and the explicit June 2027 terminal rate projection map out the bank's forward view without adding assumptions beyond those stated.
What to watch next
- Whether the BoJ implements a 25 basis-point hike at its upcoming meeting.
- The voting behavior of board member Asada at the meeting and in subsequent decisions.
- Any further moves in USD/JPY and signals from BoJ officials that could alter the expected timing of future hikes.