Japan is rapidly entering stagflation; a yen above 160 could spell serious trouble.

On April 28, the Bank of Japan experienced its deepest rift since 2016—the central bank maintained its policy interest rate at 0.75% by a vote of 6 to 3, while policy board members Hajime Takata, Naoki Tamura, and Junko Nakagawa collectively staged a public "challenge": unanimously proposing to raise rates to 1.0%.

On the same day, the "Outlook Report for Economic Activity and Prices" raised the forecast for core CPI in fiscal year 2026 from 1.9% to 2.8% in one go, and slashed the real GDP forecast for the same period from 1.0% to 0.5%.

On one hand is out-of-control inflation, on the other is collapsing growth—what the textbook calls stagflation, in today's Japan is simply "reality."

Overnight swap markets instantly priced in a 74% probability of the Bank of Japan raising rates by 25 basis points on June 16; the yen is already hovering around the 159 level, just tens of basis points away from the critical 160 "red line."

The pressure cooker inside Japan is about to explode…