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2025-12-19 09:02:49
[Bank of Japan May Raise Interest Rates Further, Potentially Hitting Nearly 30-Year High] 1. The market widely expects the Bank of Japan to raise interest rates at its monetary policy meeting ending on Friday, increasing the policy rate from the current 0.5% to 0.75%. If this prediction comes true, it will be the Bank of Japan's first rate hike since January of this year, bringing interest rates to their highest level since 1995. 2. This rate hike is seen as another key step by the Bank of Japan in normalizing its monetary policy. Although the adjusted interest rate remains low globally, it signifies that the country is gradually moving away from its long-standing ultra-loose policy environment. Market focus will be on the press conference held by Bank of Japan Governor Kazuo Ueda after the decision is announced, to assess the pace and magnitude of future rate hikes. 3. The main background to this policy adjustment is persistent inflation above the 2% target level and a stabilizing wage growth outlook. The Bank of Japan policymakers believe that these two factors will jointly support sustained inflation stability near the target. In addition, recent fluctuations in the yen exchange rate have exacerbated policymakers' concerns about imported inflation, thus reinforcing the necessity of a rate hike. 4. Most economists believe that after this rate hike, the Bank of Japan's policy rate will be closer to its "neutral" economic forecast range. The market expects the central bank not to update its assessment of the neutral interest rate at this meeting, but Kazuo Ueda may reiterate that the central bank is prepared to continue adjusting policy in the future, while avoiding commitments regarding specific timing and magnitude. 5. Surveys show that the market expects the Bank of Japan to raise interest rates to at least 1% by the end of September 2026. Future policy direction will depend closely on the strength of the economic recovery, the sustainability of wage growth, and the evolution of the inflation outlook.
