ME News message, December 19 (UTC+8), the Bank of Japan raised interest rates by 25 basis points to 0.75%, in line with market expectations, marking the highest level of interest rates in Japan in thirty years and highlighting the trend of the Bank of Japan gradually moving away from ultra-loose monetary policy. Given the continued strength of inflation data and signals of increasing confidence from policymakers, the market has fully digested the rate hike decision. From a market perspective, this policy adjustment lacked surprise, reducing the volatility risk brought by previous policy changes. Unlike past situations that triggered significant unwinding of yen funding arbitrage trades, the yen's response this time may be more influenced by policy guidance rather than the rate hike itself. The market's focus quickly shifted from the rate hike itself to the central bank's forward guidance and Governor Kazuo Ueda's assessment of future policy direction. Ueda may adopt a cautious tone at the press conference, emphasizing that future adjustments will depend on whether inflation is sustainable and driven by demand. He is expected to highlight the importance of wage growth, household consumption, and corporate investment, while also pointing out the recent rise in Japanese government bond yields and the necessity of avoiding turmoil in the financial environment. (Source: ME)
