The Bank of Japan is widely expected to hike interest rates at the conclusion of a two-day meeting on December 19, as the central bank grapples with prolonged weakness in the yen and increasingly sticky domestic inflation.
The BOJ is expected to raise its benchmark rate to 0.75% from 0.5%, a Reuters poll of analysts showed. The hike will be the BOJ’s first such move since a 25 basis point hike at the beginning of 2025, and is expected to take Japanese lending rates to a 30-year high.
Expectations for a hike were fueled by a series of sticky inflation readings in recent months, with the BOJ also recently signaling it will consider a rate hike in December’s meeting.
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The central bank is also expected to signal more potential hikes and policy tightening, as part of Governor Kazuo Ueda’s long-running plan to wean the Japanese economy off decades of ultra-loose policy.
“We believe markets are going into the BOJ meeting looking for clues about 2026 policy normalization profile and not just about December’s meeting outcome,” OCBC analysts said in a recent note.
Ueda and the BOJ will also have to account for Prime Minister Sanae Takaichi’s plans to increase government spending and loosen fiscal conditions, although investors have questioned just how much leeway the government has to increase spending.
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