The Bank of Japan has raised its policy rate to 0.75%, the highest level in three decades, marking another decisive step away from ultra-easy monetary policy.
While the move was widely expected, its symbolic significance outweighs its immediate market impact.
🔹 Why this matters
- Japan has officially exited the era of near-zero rates
- Real interest rates remain deeply negative, leaving room for further tightening
- Policy normalisation is now structural, not tactical
🔹 Market reaction
- Yen strength proved short-lived — a classic “buy the rumour, sell the fact”
- Investors remain sceptical of an aggressive hiking cycle
- Focus has shifted squarely to Governor Ueda’s press conference and forward guidance
🔹 Key variables going forward
- Wage growth (especially Shunto negotiations)
- Inflation durability
- BOJ’s view on the neutral/terminal rate
- Policy divergence with a potentially easing Fed
The consensus view: more hikes are likely, but at a gradual pace.
Absent a clearly hawkish signal, yen weakness may persist in the near term — even as the medium-term case for JPY recovery builds.
Japan’s monetary regime has changed.
Markets are now debating how far, not whether, the BOJ will go.