The Bank of Japan has to be careful with rate hikes, economist says

Quite an interesting day, especially when it comes to the dollar yen watchers. And of course it was. It's been knocking on that door of 160. It opened the door. What are your expectations now in terms of what the BOJ is going to do next month? That doesn't really invite the possibility of double surprise of QT as well as a rate hike. Like it potentially does. I think the BOJ has to be careful here though, because if they type too aggressively, they do run the risk of getting inflation back down below the target. And that is the big problem in Japan. If you look at the call rate of inflation, excluding food and energy, it's still below, it's just below the 2% target on the most recent numbers. So this presents a bit of a dilemma for the BOJ. On the one hand, yes, it may want to help the Ministry of Finance. Support the yen, but on the other hand, it's still not entirely sure that it's got inflation sustainably at its target and so that puts them in a bit of a bind. I suspect that they'll probably at this stage just do the wine back in government and buying government bonds and flag that they may raise interest rates further, but I'd be be surprised if they do both at the same time. Shane Denn in Abu Dhabi joining the conversation. This is going to be really fascinating to watch because of course, the weekend also presents an upside risk to inflation. So how low do you think yen can go? And could we even test the likes of 165 as some have suggested? Luckily, certainly could. It's amazing to see the yen get back to levels last seen at the time of the Plaza Accord or just just after that. So that is a bit of a surprise in all of this. It is a concern, obviously, for Japan. But yeah, the key issue when a country's currency goes down is whether it adds to inflation. It has been falling for some time now and there hasn't been a noticeable boost to Japanese inflation, particularly if you if you look at it beyond food and energy. So that sort of complicates the picture a little bit. And that probably explains why the BOJ Bank of Japan has been less mindful of the weekend week again than the Ministry of Finance has. There's been a bit of tension between the two. So yes, I'd have to say there is a risk it could go further from here until you get some sort of break. And it's unknown as to what level it could ultimately get to. I suspect it'll run out of PUP eventually. The Japanese yen is getting very undervalued, just as the US dollar is getting very, very overvalued. But as we've seen with U.S. dollar for many, many years, it can stay over value for a long time, just as a currency like the yen can stay undervalued for a long time.