I just read a very interesting analysis by economist Hideo Kumano about what’s happening in Japan with monetary policy. The main point is the relationship between the Bank of Japan and Japan’s Finance Minister, Satuki Katayama, which apparently will be decisive for the next interest rate move.

What stands out is that if Katayama publicly criticizes the Central Bank’s rate hikes, he could sabotage the entire effort to strengthen the yen, which has been in free fall. It’s a delicate balance because although Japan’s finance minister tends to favor looser monetary policy, he also needs to deal with the rising cost of living affecting citizens.

Now, energy prices are rising, which further complicates the situation for the administration. According to circulating data, the overnight swap market is pricing in a 70% probability of a rate increase in April. That is, the central bank will likely go ahead with the measure, but everything will depend on how Japan’s finance minister manages communication and political coordination with the institution.

This is one of those dynamics that often go unnoticed but can really determine the direction of the yen and, by extension, emerging markets in the region.