A Historic Shift: Japan's Central Bank Charts Course Out of Ultra-Easy Policy
Japan is moving decisively away from the ultra-low interest rates that have defined its economy for decades, marking a historic shift that could ripple through global markets.
The Bank of Japan (BOJ) recently raised its policy rate to 0.75%, the highest level in 30 years. This isn't the end. According to former BOJ policymaker Makoto Sakurai, the central bank could raise rates to 1.0% by June or July of 2026, with a view to reaching 1.5% during Governor Kazuo Ueda's term. The ultimate goal is to approach the "neutral rate"—estimated around 1.75%—which neither stimulates nor restrains the economy.
This pivot is driven by inflation, which has stayed above the BOJ's 2% target for nearly four years. Despite the hike, market reaction has been mixed; the yen recently traded around 156.99 against the U.S. dollar, prompting government warnings against excessive currency moves. Meanwhile, Japan's Nikkei 225 stock index has shown resilience, trading near 50,412 points.
The BOJ's path forward is cautious, with potential hikes every six months. This normalization ends a long era of easy money and positions Japan as a new source of potential volatility and opportunity for global investors, as capital may flow back to rising Japanese yields.
