Bank of Japan Rate Hike
December 19, 2025
As widely anticipated, the Bank of Japan implemented its first interest rate increase in 11 months. At 0.75%, the short-term deposit facility has attained its highest level in in just over three decades. Today’s fourth increase since March 2024 won unanimous approval by the central bank board after 5 hours of deliberation, but monetary officials managed to avoid signaling any sense of speeding up the normalization process. By their own admission, today’s increase leaves the bank’s policy stance still extremely skewed toward growth promotion:
Real interest rates are expected to remain significantly negative, and accommodative financial conditions
will continue to firmly support economic activity.
The timing of future interest rate hikes was left very vague, with language very similar to what was used during the prior 11 month pause. It all depends on the future evolution of price and wage inflation. In total, the interest rate has gone up marginally less than a percentage point since being held at -0.1% for eight years. Core consumer price inflation in Japan, by contrast, has exceeded the 2% target for 44 straight months, including a reading of 3.0% last month. In reaction to today’s rate hike, the 10-year Japanese JGB yield rose five basis points to 2.01%. However, the yen slumped 1.0% to a monthly low against the dollar, and the Nikkei-225 index of equities closed up 1.0%. By downplaying the significance of today’s decision, officials avoided triggering an immediate disruption in the global monetary system that some market participants had feared.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of Japan
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