The Bank of Japan (BOJ) officially announced earlier that the policy interest rate has been raised by 25 basis points to 0.75%, the highest level since the 1990s. This move signifies Japan’s official exit from the long-standing zero interest rate framework and sends a signal: if the economy and prices remain stable, the rate hike cycle will continue.
The Data-Driven Momentum Behind the Rate Hike
The key drivers of the decision are the benign cycle of inflation and wages. Core CPI has remained above 2% for three consecutive years. BOJ estimates that in fiscal year 2027, it can return to 2.0%. Companies remain optimistic about wage increases in the spring labor negotiations of 2026, reinforcing domestic demand momentum.
The long-term weakening of the yen has increased import costs, and rate hikes have become a necessary measure to mitigate imported inflation.
On the other hand, although GDP annualized growth rate shrank by 1.8% in Q3 2025, BOJ emphasizes this as a temporary phenomenon: fiscal stimulus of 21.3 trillion yen and AI equipment investments are expected to drive a rebound in Q4. Looking ahead, the official statement states:
If the economic and price trends align with forecasts, interest rates will continue to be raised.
According to documents released by BOJ, since inflation remains above nominal interest rates, Japan’s real interest rate is still negative, and the monetary environment remains accommodative.
Future Policies and Market Observations
BOJ indicates it will maintain a “gradual and data-dependent” approach. The market generally expects another rate hike around April or June 2026, with interest rates possibly reaching 1% by mid-2026, and the long-term terminal rate estimated by BNP Paribas to be around 1.5%.
Analysts warn that wage negotiations and retail data in the first half of 2026 will be key indicators for the pace of rate hikes. For investors, the interaction between the yen’s movement, Japanese bond yields, and global capital reallocation will influence asset performance next year.
Bitcoin Surges to $87,000
In the crypto market, perhaps due to the realization of negative news, Bitcoin surged to $87,500. The recent price movements can be described as a continuous rollercoaster, with short-term volatility intense.
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