The Bank of Japan (BOJ) is widely expected to raise interest rates to a three-decade high, marking another milestone in its gradual exit from ultra-loose monetary policy. At the conclusion of its two-day meeting on Friday, the BOJ is forecast to lift its short-term policy rate to 0.75% from 0.5%, the first hike since January and the highest level since 1995. This move underscores the central bank’s growing confidence that sustained wage growth will keep inflation anchored around its 2% target.
Although Japan’s interest rates would remain low compared with global standards, the increase represents a significant shift for an economy long accustomed to near-zero rates and unconventional easing. Under Governor Kazuo Ueda, the BOJ has already ended a decade-long stimulus program and raised rates twice, signaling a clear commitment to monetary normalization as inflation proves more persistent.
Markets are now focused on Ueda’s post-meeting press conference for guidance on the future path of interest rates. Analysts expect the BOJ to emphasize that real interest rates will remain deeply accommodative even after the hike, while signaling openness to further increases beyond next year. According to a Reuters poll, 90% of economists anticipate a December hike to 0.75%, and more than two-thirds expect rates to reach at least 1.0% by September next year.
The decision comes amid stronger economic signals, including rising business confidence, continued wage growth, and core consumer inflation holding at 3.0% in November—well above the BOJ’s target. Persistent food price pressures and a weaker yen, which raises import costs, have also strengthened the case for tightening. Recent yen depreciation has highlighted Japan’s role as a low-cost funding source globally, meaning further rate hikes could have ripple effects across international markets.
While the BOJ estimates Japan’s neutral interest rate to lie between 1% and 2.5%, officials are expected to remain cautious and avoid committing to a specific pace or endpoint for future hikes. Still, the anticipated move to 0.75% reinforces the message that Japan is entering a new era of policy normalization after decades of deflationary struggle.


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