┈┈➤The panic over Japan's continued interest rate hikes

The market is not panicking over this 25 basis point hike; the expectation for this 25 basis point increase was already released in early December.

What the market is currently panicking about is that Japan will continue to raise interest rates consecutively, as Japan's inflation is indeed quite serious.

┈┈➤The impact of the U.S. on Japan's inflation

As shown, the candlestick chart represents the USD/JPY exchange rate, and the green line indicates Japan's CPI.

This correlation is somewhat obvious.

In other words, a significant reason for Japan's inflation is the U.S. interest rate hikes.

However, the U.S. has just consecutively cut interest rates three times between September and December 2025. Therefore, influenced by this, Japan's CPI may experience a certain degree of decline.

Of course, part of Japan's inflation is also due to the relatively good development of Japan's economy.

However, excluding inflation factors, Japan's GDP measured in constant dollar terms has indeed shown a growth trend since 2020, but it is not an exaggerated growth.

Moreover, Japan is highly likely to raise interest rates to 0.75% on December 19. This is a relatively high interest rate, the highest in Japan in nearly 30 years.

(Blue line: Japan's basic discount rate and basic loan rate,
Pink line: unsecured overnight lending rate)

Therefore, Japan's CPI is highly likely to experience a certain degree of decline in the near future.

Of course, how much Japan's inflation can fall still needs to be observed. However, during this observation period, theoretically Japan will not raise interest rates continuously.

┈┈➤ The interval between Japan's interest rate hikes is not short.

Looking back at the timeline of Japan's current round of interest rate hikes:

In March 2024, the interest rate will be raised from -0.1% to around 0%.
In January 2025, the interest rate will be raised from around 0% to 0.5%.
On December 19, 2025, it is expected that the interest rate will be raised from 0.5% to 0.75%.

That is to say, the interval between Japan's interest rate hikes is relatively long, basically every 10 to 11 months. Therefore, even if Japan has plans for continuous rate hikes, they may not occur in the next few months.

┈┈➤ Written at the end

The yen and U.S. Treasuries are both safe-haven assets. During systemic crises in the U.S., like the 2008 subprime mortgage crisis and the 2020 pandemic, the market's demand for the yen is stronger.

However, there are certain expectations of a recession in the U.S. currently, but no explosive crisis. This is why the 2-year U.S. Treasury yield is relatively low, while the 10-year Treasury yield has remained above 4%.

Therefore, in this environment, the market's demand for the yen may not be very strong.

Of course, the short-term impact of Japan's interest rate hikes is mainly emotional, which may not be easy to predict. It is also possible that the expectations of a rate cut on December 19 have already been released in advance, and there may still be a certain degree of negative impact on that day.

However, it is highly probable that Japan will not raise interest rates again in the next few months. And a few months later, the U.S. may again cut interest rates (based on expectations of a change in the Federal Reserve's leadership), which would be beneficial for Japan's inflation to decrease.