The continued weakness of the Japanese yen is reshaping the Bank of Japan's policy considerations. As the devaluation's impact on rising prices becomes increasingly evident, the central bank is forced to reassess its interest rate hike timetable—breaking away from the original gradual pace.

According to multiple sources, although the Bank of Japan is highly likely to keep interest rates unchanged at the January 23 meeting, the combined effect of exchange rate fluctuations on inflation has become a key factor driving the policy shift. Simply put, the weaker the yen, the higher the cost of imported goods, and ultimately, companies pass this cost onto consumers, pushing domestic inflation higher.

Central bank officials now have a clear stance: the transmission effect of yen depreciation on prices is strengthening. They see that as the cost of imported inputs rises, companies are accelerating the transfer of pressure to end consumers. This is no small matter—it directly alters the central bank's decision-making logic. Last month, the Bank of Japan just completed an interest rate hike, but no clear timetable for further increases was provided. If the yen continues to weaken, policymakers may be forced to accelerate the interest rate hikes originally planned for later.

What was the market's previous expectation? Private economists believed the Bank of Japan would raise rates every six months, with the next hike earliest this summer. But now, the signals are very different—central bank officials are more inclined toward "timely adjustments" rather than excessive caution, meaning there is considerable uncertainty about the pace of rate hikes.

Once the news broke, the market reacted immediately. The yen against the dollar touched a recent low of 158.68, then rebounded briefly to 158.33, and as of now, has fallen back to around 158.55. This sharp volatility indicates that market expectations for a policy shift by the central bank are rapidly adjusting.

The January 23 meeting will be a critical moment. The focus will be on inflation and the exchange rate, with interest rates likely to remain high. How things will develop next, the market is waiting to see.