The Bank of Japan raised its policy interest rate to 1% in mid-June, marking the highest level since 1995, and signaled more increases ahead amid rising inflation risks [1, 2]. BOJ board member Naoki Tamura said the central bank plans to raise rates by 0.25 percentage points every few months toward a neutral rate near 2%, adding that accelerated hikes may be needed if inflation pressures worsen. "If the chance of upside price risks materialising heightens, it's necessary to accelerate the pace of rate hikes without hesitation," Tamura said on June 25 [3, 4].

Underlying consumer price inflation in Japan has neared the BOJ's 2% target, prompting the tighter policy stance [1, 4, 2]. The yen weakened toward its lowest levels since 1986, trading around 161.4-161.6 yen per US dollar, as markets bet on further rate hikes by the Federal Reserve [1, 5, 2]. The US dollar index rose to 101.25 on June 23, its highest since May 2025. FX strategist Tommy von Bromsen said uncertainty over the Middle East conflict helped support the dollar's strength.

Fed funds futures show investors pricing in nearly two quarter-point hikes by early 2027, with more than an 85% chance of a September hike, supporting firm dollar demand [6, 5]. Against this backdrop, Malaysia’s ringgit slumped about 4.3% in June, the worst-performing Asian currency this month, amid concerns over capital outflows [7]. Malaysia’s central bank and Financial Markets Committee said on June 24 they will intensify efforts to attract foreign exchange inflows by promoting repatriation and conversion of overseas corporate earnings [8, 9, 7].

Elsewhere, Australia reported a labor market rebound for May, with employment rising 40,300 and unemployment falling to 4.4%, reflecting a tight labor market amid ongoing inflation concerns [10, 11]. The Reserve Bank of Australia has already raised interest rates three times this year to 4.35% and markets expect further tightening later in 2026 [11].

The BOJ’s next policy meeting will be closely watched for signs on the pace and scale of future rate hikes as inflation dynamics evolve.