Former BOJ Chief: FX Interventions Need Complementary Rate Hikes - Japan's Yen Outlook

Former BOJ vice minister for international affairs, Takehiko Nakao, argues that while Japan's FX reserves can immediately impact markets, their effect is more durable when paired with steady interest rate hikes. With the yen resuming its decline as Japan heads to Sunday's election, Nakao said the BOJ's accommodative stance and slow pace of rate increases have kept inflation-adjusted interest rates negative and widened U.S.-Japan yield differentials. The BOJ raised its short-term policy rate to 0.75% in December, signaling readiness to hike further, but real borrowing costs remain deeply negative as inflation exceeds 2% for nearly four years. Nakao warned that without faster rate hikes, the yen could weaken further, citing outgoing Fed Chair nominee Kevin Warsh's adherence to a strong dollar tradition.