Some Bank of Japan policymakers are considering the possibility of raising interest rates sooner than market expectations, with April emerging as a potential timeline, according to sources familiar with the central bank's deliberations. This more hawkish stance is driven by concerns that the yen's persistent decline could exacerbate already broadening inflationary pressures.

While the BOJ is widely expected to hold its policy rate steady at its upcoming meeting concluding January 23, internal discussions reveal a growing focus on the risks posed by a weak currency. The yen has fallen approximately 8% against the U.S. dollar since October, briefly touching an 18-month low this week. This depreciation increases import costs for fuel, food, and materials, potentially giving companies further impetus to raise consumer prices.

The sources indicate that while there is no board consensus on timing, some members see scope for action if evidence mounts that Japan will durably achieve its 2% inflation target. This contrasts with prevailing market views, reflected in a Reuters poll, which expect the next hike no earlier than July.

The April 27-28 policy meeting is viewed as particularly critical. By that time, the outcome of annual wage negotiations will be clearer, offering insight into whether robust pay hikes will support sustained domestic demand. The BOJ will also release its quarterly growth and inflation projections, extending its forecast horizon through fiscal 2028 for the first time, which will necessitate a deeper analysis of the long-term rate path.

Governor Kazuo Ueda has emphasized a cautious approach, mindful of the fragile economy's ability to absorb higher borrowing costs. However, the summary of opinions from December's meeting revealed that several board members advocate for a more proactive stance to avoid falling behind the curve on inflation. One member called for steady hikes, another suggested increases every few months, and a third argued that timely action would help curb excessive yen depreciation.

The central bank is likely to raise its economic growth and inflation forecasts for fiscal 2026 at next week's meeting. With core consumer inflation remaining above the 2% target for nearly four years and real interest rates deeply negative, pressure is mounting on the BOJ to normalize policy despite significant global economic headwinds.