Sakurai Argues for BOJ Rate Hike as Yen Depreciation Risks Mount

Makoto Sakurai, a former Bank of Japan official, has made the case for a potential rate increase as soon as March if yen weakness accelerates ahead of the Japan-U.S. summit. According to reports from Jin10, Sakurai stressed that one-off currency interventions provide only limited, short-term relief against persistent selling pressure on the yen. He contends that raising interest rates remains the most direct and effective countermeasure to address yen weakness at its root.

The Limits of Intervention vs. Rate Action

Sakurai’s central argument challenges the typical policy response to currency depreciation. While central banks often resort to direct market intervention, he highlighted that this approach fails to address underlying weaknesses in currency valuations. A rate hike, by contrast, would strengthen the yen organically by making Japanese assets more attractive to investors. This reflects a deeper understanding that monetary policy tools carry different levels of potency when tackling currency challenges.

How Yen Weakness Feeds Inflation Pressures

The former BOJ member also outlined the economic mechanics of prolonged yen depreciation. When the currency weakens significantly, import expenses rise, which in turn drives up overall inflation domestically. This creates pressure that offsets the benefits of government fuel subsidies designed to ease cost-of-living strains. Sakurai noted that timing matters significantly: if the yen experiences substantial depreciation, the BOJ could justify a March rate hike by pointing to expected robust wage growth during Japan’s annual spring wage negotiations between employers and labor unions. This would provide both an economic rationale and political cover for the decision.