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The Bank of Japan is expected to raise its benchmark interest rate to 0.75% at its upcoming policy meeting on December 18-19, marking the highest level in three decades. This move is seen as a significant step towards normalizing Japan's monetary policy, which has been ultra-loose for years.
*Key Points:*
- *Rate Hike*: A 25 basis point increase from the current 0.5% policy rate, expected to be approved by a majority of the nine-member policy board.
- *Economic Context*: Japan's inflation has remained above the 2% target for nearly four years, driven by rising wages and labor shortages.
- *Global Impact*: The rate hike could influence global markets, particularly currency and bond flows, and may trigger a partial unwinding of the yen carry trade.
- *Future Outlook*: Analysts predict further rate increases, with some forecasting a 1% rate by September 2026 ¹ ² ³.
The Bank of Japan's decision is closely watched, as it signals a shift in Japan's economic strategy and could have far-reaching implications for global finance.
