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Commerzbank analyst Volkmar Baur forecasts two additional interest rate hikes by the Bank of Japan (BoJ) in 2026, aiming to align monetary policy with an upward-trending neutral rate. This strategy is expected to gradually strengthen the Japanese Yen (JPY) against the US Dollar (USD) and Euro (EUR) in the second half of the year. The BoJ’s gradual normalization of policy, following years of ultra-loose monetary conditions, signals a shift toward balancing inflation control and economic stability.
For forex markets, the anticipated rate hikes could reduce the Yen’s traditional status as a funding currency, making it more attractive for carry-trade strategies. Traders may adjust positions in USD/JPY and EUR/JPY pairs as central bank policy divergence narrows. The BoJ’s pace of tightening will also influence cross-currency correlations and risk-on/risk-off sentiment.
Investors should monitor BoJ’s policy statements and inflation data for clues about the timing of rate hikes. Global economic indicators, such as US-Japan trade dynamics and commodity prices, will also impact the Yen’s trajectory. The BoJ’s ability to avoid triggering a market selloff during policy normalization will be critical.
