Bank of Japan may halt rate hikes if yen strengthens — Goldman

Goldman Sachs economists suggest that the Bank of Japan may reconsider its plans to raise interest rates if the national currency strengthens to 130 yen per dollar. Experts note that this could hurt exporters' profits and slow wage growth, posing a major challenge to hitting the 2% inflation target.

With the yen forecast to reach 135 per dollar by year-end, experts warn that excessive currency strengthening could push the inflation outlook for fiscal year 2026 down to 1.5%. By curbing import prices and domestic investment, such a trend would significantly complicate the central bank’s efforts to sustain inflation growth.

In the alternative scenario, if the yen weakens past 160 per dollar, it could prompt the central bank to accelerate rate hikes. However, the baseline forecast still points to continued gradual monetary tightening, provided economic growth remains above its potential rate.