Japan is poised for another landmark step in the unwind of ultra-easy policy. Reuters reported the Bank of Japan is widely expected to raise its short-term policy rate to 0.75% from 0.5% at the meeting ending Friday, Dec. 19, which would take rates to a three-decade high. The move reflects officials’ confidence in a wage-inflation cycle, even as U.S. tariff headwinds and yen weakness complicate the outlook. See rate hike expectations.
Who is driving it and why now. Governor Kazuo Ueda’s BOJ has emphasized it needs evidence that inflation can be sustained with wage gains. Reuters pointed to sticky food costs keeping inflation above the 2% target for nearly four years, and to branch intelligence suggesting firms expect “bumper” wage hikes next year amid labor shortages. Meanwhile, Finance Minister Satsuki Katayama signaled there’s “no gap” between the government and BOJ views, lowering political friction around tightening. See wage-inflation cycle.
Immediate market impact is likely to show up through the yen and global positioning. CoinDesk noted the yen strengthened to around 155 per dollar ahead of the BOJ decision, a reminder that Japan’s policy shift is not just local. Higher Japanese rates can pressure popular “borrow-yen, buy-risk” strategies, potentially tightening global financial conditions at the margin. See yen ahead of BOJ.
Next steps hinge on guidance more than the hike itself. Reuters expects the BOJ to pledge further increases without committing to a pace, with Ueda’s press conference at 06:30 GMT a key signal point. Investors will watch whether Ueda leans hawkish to prevent renewed yen declines, or cautious to avoid choking off demand as funding costs rise. Portfolio takeaway: Japan is no longer a “set-and-forget” zero-rate anchor. Reassess exposures that rely on stable yen funding and watch for volatility around Ueda’s tone.
