Japan’s high debt-to-GDP ratio and fiscal constraints limit the Bank of Japan’s ability to raise rates aggressively to support the yen.
The yen’s recent weakness persists despite speculation of Bank of Japan rate hikes following joint intervention with the U.S. Analysts argue structural factors will continue pressuring the currency, regardless of policy shifts.
Japan’s debt-to-GDP ratio exceeds 200%, the highest among major economies, restricting aggressive monetary tightening. Higher rates would sharply increase government debt servicing costs, capping the BOJ’s potential terminal rate well below peers like the U.S. or Europe.
Additional pressures include geopolitical risks and the long-running “Takaichi trade,” which has amplified concerns over Japan’s fiscal sustainability since late 2023. These factors overshadow any near-term policy adjustments.