Japan's interest rate hike countdown in one hour

December 19, 2025, 11:00 AM

The market generally expects that on Friday, Bank of Japan Governor Kazuo Ueda

will raise the benchmark interest rate by 25 basis points

to 0.75%, challenging the highest level in nearly thirty years.

Official statement:

Japan's long-term reluctance to raise interest rates is primarily due to

having experienced the 'lost two decades', with the economy trapped in a deflationary cycle.

In an environment of falling prices and weak demand,

the central bank can only attempt to stimulate investment and consumption

through extremely low or even negative interest rates,

aiming to avoid further economic contraction.

The side effects of the long-term ultra-loose policy are becoming increasingly apparent.

The excessive depreciation of the yen has raised the costs of imported raw materials and energy,

compressing profit margins for small and medium-sized enterprises and eroding households' real purchasing power.

When low interest rates no longer provide significant stimulating effects

but continue to amplify exchange rate and price distortions,

the policy logic must be readjusted.

In addition to the market's general expectation of an interest rate hike next Friday (19th),

there may be three more adjustments afterwards.

If realized, Japan will end a decade-long ultra-loose cycle,

and the yen's transformation from a 'cheap financing tool'

to a 'high-yield asset' will also enter a critical stage,

which is a signal that the global 'cheap money era' may come to an end.

This will inevitably impact the flow of funds in the risk market.

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