BOJ expects the impact of a weaker yen on inflation to increase

Bank of Japan Highlights Growing Inflation Risks from Weak Yen

The Bank of Japan has noted that the depreciating yen is increasingly fueling inflation, as businesses are more frequently transferring higher costs onto consumers. This trend, outlined in the central bank's latest quarterly outlook, indicates heightened concern over rising price levels, which could prompt further interest rate hikes.

According to the report, the initial surge in inflation occurs within the first year, primarily due to companies raising prices to offset increased import expenses. However, the analysis also reveals that a comparable rise in inflation emerges about three years later, driven by secondary effects such as higher labor costs being passed along the supply chain. This pattern underscores the prolonged and compounding impact of a weaker yen on Japan’s economy.