The panic in the markets over a possible increase in rates by the Bank of Japan (BOJ), limited to 0.25 percentage points from the current 0.50% to 0.75%, seems exaggerated.
The markets have already priced in this move with a 94% probability in overnight swap contracts, reducing the risk of sudden shocks.
Unlike previous unexpected hikes that caused significant crashes, this decision is widely anticipated and could slip beyond the meeting on December 18-19.
👉 Previous vs. Current Scenario
In past cycles, BOJ hikes were a surprise for the markets, triggering volatility and sharp declines, as in 2024 when stocks lost 12% in one day and crypto between 20 and 30%.
Today, Reuters polls indicate that 90% of economists expect a +25bp in December, with the policy rate at the highest level in 30 years but still below the estimated neutral (1-2.5%).
The stock and FX markets are already reflecting this gradual normalization, limiting downside.
👉 ETF Sales by Japan:
Gradual Sale, Not Shock.
The alarm over the sale of approximately 83 trillion yen (over 500 billion dollars) in ETFs held by the BOJ is unfounded: sales will begin in January 2026 at an imperceptible pace of 330 billion yen annually (about 2 billion dollars), requiring over 100 years to complete the total sale.
This strategy, similar to the JGB sales of the 2000s, aims to avoid destabilizations, with Sumitomo Mitsui Trust Bank tasked with the auctions to minimize impacts.
The ETF portfolio reduces a historical overhang without haste, supporting stock stability.
👉 Liquidity Injection Parliament:
118 billion dollars.
Yesterday, December 16, the Japanese parliament approved a record supplementary budget of 18.3 trillion yen (about 118 billion dollars) for FY2025, funding PM Sanae Takaichi's stimulus with energy subsidies, cash aids, AI incentives, and security.
Over 60% is covered by new bonds, but injects immediate liquidity into the economy, countering inflationary pressures and a weak yen.
This fiscal support strengthens BOJ confidence, facilitating potential rate hikes without stifling growth.
👉 Positive Impact on BOJ and Potential Bear Trap
The injection mitigates recession risks, allowing the BOJ to continue normalization (next target 1% by September 2026) with a stable economic outlook.
Combined with rising wages and inflation >3%, it creates conditions for a hike without panic.
The context suggests a possible bear trap: premature sales on exaggerated fears could reverse post-decision, with a stock market rebound, a crypto market rebound, and a strong yen, thus trapping short sellers.
