Nomura Securities has issued a warning that if the Japanese yen continues its depreciation trend and approaches the 160 level, the Bank of Japan could implement rate hikes at each of its next three policy meetings in September, October, and December, marking the most aggressive tightening cycle in decades. While the firm's baseline forecast remains at one hike per quarter, the potential for further yen appreciation could expand if the administration led by Takayuki Higa refrains from intervention and the Federal Reserve follows through with rate cuts.
The ongoing slide in the yen is prompting markets to reassess the trajectory of BOJ policy normalization. Nomura's Head of Japan FX Strategy, Yujiro Goto, stated in a Bloomberg Television interview that a 25-basis-point hike in September "seems reasonable," and added that consecutive moves in October and December "are possible" should the yen's weakness extend toward the 160 threshold. This represents a notable shift in market expectations for a central bank that has previously pursued a cautious approach to policy tightening.
Driven by rising speculation of accelerated BOJ tightening and conjectures about potential asset allocation changes by Japan's Government Pension Investment Fund, the yen has gained more than 2% this week, reaching approximately 156 against the US dollar. Overnight index swaps now fully price in a 25-basis-point hike for September, along with another increase by January of next year.
Under the extreme scenario outlined by Goto, the primary trigger for three consecutive hikes would be sustained yen depreciation approaching the 160 level. He noted that if this momentum continues, the BOJ acting at all three meetings in September, October, and December becomes a realistic possibility. Such a sequence would be exceptionally aggressive for the Japanese central bank, which has spent much of the past three decades fighting deflation while maintaining borrowing costs near zero, making rapid tightening historically unprecedented. Goto's own baseline outlook remains relatively moderate, as he projects at least one hike per quarter and maintains a target of 154 yen per dollar.
Goto emphasized that the government's stance on monetary policy will be a crucial factor in determining whether the yen's strength can be sustained. Investors are closely monitoring signals from Prime Minister Takayuki Higa, who has previously expressed reservations about rate increases, with markets watching for any indication she might shift toward supporting further BOJ tightening. "If she still sounds negative about BOJ rate hikes, the market will be disappointed and the yen could be sold again," Goto said. Conversely, if Higa opts to stay out of monetary policy commentary or emphasizes the central bank's independence, he sees room for the yen to strengthen beyond 150.
The Federal Reserve's trajectory could provide another catalyst, according to Goto. Recent comments from Fed officials suggest US policymakers are in no hurry to cut rates in September. Should the Fed hold steady while the BOJ signals hawkish intent, the combination of a weaker dollar and stronger yen could push the dollar-yen pair below 155 sooner than markets currently anticipate. BOJ Governor Kazuo Ueda has already hinted at possible action at the upcoming meeting, while one of the central bank's most hawkish board members, Hajime Takata, has left room for outsized and consecutive hikes, further reinforcing expectations of an accelerated tightening path.
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