I just read an interesting analysis about what might happen with Japan's central bank this year. It seems that experts like Akira Hoshino from Citigroup are closely watching how the yen continues to weaken, and this is putting real pressure on the central bank to act.

The thing is: if the dollar keeps gaining ground against the yen and the rate rises above 160, the Bank of Japan will probably have no choice but to start raising rates. We're talking about 25 basis point increases, bringing the unsecured market interest rate to around 1% by April. Then, if the yen maintains that low level, a second similar move could come in July.

What’s fascinating is that Hoshino points out a fundamental problem: negative real interest rates are what’s driving all this yen weakness. The central bank is trapped in a situation where it needs to normalize rates to control the currency, but that’s exactly the opposite of what it has been doing for years. It’s a pretty significant shift in the narrative for Japan’s central bank.

By the end of the year, some even speculate about a third rate hike. The expected trading range is quite broad, between just under 150 and 165 yen per dollar. The interesting part is to see how these decisions by Japan’s central bank will influence global markets, because it’s not just a local issue. Any movement in rates here has cascading effects on other markets.