Dec 19 (Reuters) – The Bank of Japan raised interest rates on Friday to levels unseen in three decades, taking another landmark step in ending decades of huge monetary support and near-zero borrowing costs.
As widely expected, the central bank raised short-term interest rates to 0.75% from 0.5% by a unanimous vote.
COMMENTS
TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BANK OF JAPAN OFFICIAL, TOKYO:
“From the beginning, the focus today is the press conference by Governor Ueda. The BOJ is getting more and more behind the curve. So, today could be a good chance to catch up with the market and show a little bit hawkishness towards next year. So, if Ueda-san is not hawkish enough, I think the yen will continue to depreciate.”
YOSHIRO SATO, ECONOMIST AT RESONA HOLDINGS, TOKYO:
“The BOJ said in a statement that real interest rates are at ‘significantly’ low levels. This indicates a risk that the BOJ’s terminal rate is higher than our expectation of 1%.”
TOM KENNY, SENIOR INTERNATIONAL ECONOMIST, ANZ, SYDNEY:
“The BOJ seems more upbeat on the economy and prospects for securing 2% inflation sustainably relative to October MPM. The BOJ says it’s ‘highly likely’ that the mechanism in which both wages and prices rise will be maintained. The BOJ states real interest rates remain significantly low (and thus stimulatory). This points to further tightening from the BOJ. How much so? Over to Ueda later this afternoon for guidance.
“We have just one more hike of 25bp (taking policy rate to 1%) in April 2026.”
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO:
“The hike went through as expected. But depending on Governor Ueda’s press conference, we may get information about the neutral rate. Depending on the nuance – whether this was a hawkish or a more dovish hike – there’s also a risk the yen could weaken further.”
BEN BENNETT, HEAD OF INVESTMENT STRATEGY FOR ASIA, L&G ASSET MANAGEMENT, HONG KONG:
“The decision to hike rates was widely expected, so the market reaction has been muted. The key will be how much Ueda focuses on future rate hikes in the press conference and whether he hints at the pace of such hikes. The yen is likely to be sensitive to any such clarification. Having weakened a fair amount in recent months, we quite like the upside potential for the currency here.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:
“The decision to raise rates was in line with market consensus and, therefore, not a surprise.
“The BOJ has explained the rationale for the hike largely in terms of the initial momentum in this year’s Shunto (spring wage negotiations), which is consistent with the governor’s comments at the October meeting.
“Looking ahead, the BOJ is likely to continue hiking rates gradually without explicitly indicating where it sees the terminal rate. At the same time, a rapid pace of tightening is not expected, and downward pressure on the yen in the FX market is likely to remain persistent.”
NORIHIRO YAMAGUCHI, LEAD JAPAN ECONOMIST, OXFORD ECONOMICS, TOKYO:
“The hike was no surprise… The market’s attention will be more on the press conference later. While it is unlikely for Governor Ueda to talk about the neutral rate given the central bank’s stance thus far, he is likely to emphasise that they will hike further to fend off yen depreciation pressures. Otherwise, the yen will depreciate and bond yields will turn lower.
“Based on recent Reuters reporting, the government is likely to accept a few further hikes. My baseline outlook is that the BOJ will hike again in June 2026, after monitoring the impact of today’s rate hike on the real economy and examining pay rises among SMEs. But what has persuaded the government to accept rate hikes is largely yen weakness, and the BOJ could find it more difficult to justify further hikes if pressure on the yen fades.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:
“The hike was largely priced in, shifting market attention squarely to Governor Ueda’s press conference for signals beyond the immediate decision.
“The yen initially strengthened but quickly surrendered those gains, in part reflecting thin market liquidity that amplified short-term price action rather than a reassessment of fundamentals.
“A sustained recovery in the yen is therefore unlikely to be driven by this move alone. It would require clearer and more assertive forward guidance from the BOJ, complementary fiscal discipline from policymakers, and a supportive external backdrop, most notably a softer U.S. dollar.”
MEL SIEW, ASIA CREDIT PORTFOLIO MANAGER, MUZINICH & CO, SINGAPORE:
“Today’s rate rise was well signalled by Governor Ueda’s speech at the start of December and largely expected by markets. Having been a major funding currency for a sustained period of time, we expect the Bank of Japan to remain gradualist in its approach to normalising monetary policy and to clearly signal any future changes.”
“We think Japanese corporates will increasing look to the offshore U.S. Dollar credit market for funding over their domestic bond market. Pressure on credit spreads from increased issuance will be offset by solid economic growth and strong corporate credit fundamentals, as well as by continued investor appetite for Japanese corporate credit.”
SHOKI OMORI, CHIEF DESK STRATEGIST, MIZUHO SECURITIES, TOKYO:
“Markets finally got through the monetary policy meeting and are feeling a sense of relief at the as-expected result.
“I do not see a major impact on rates. On the other hand, given that USD/JPY investors were feeling cautious going into the meeting, the yen was strengthening, but after the result came out, it resumed weakening. USD/JPY could fall if the dollar weakens depending on the state of the U.S. economy. But from the yen side, carry traders will push the yen lower and USD/JPY is likely to rise further.
“JGB markets will revert to being driven by supply/demand factors, with investors focused more on bond issuance rather than macro fundamentals.”
MASAHIKO LOO, SENIOR FIXED INCOME STRATEGIST, STATE STREET INVESTMENT MANAGEMENT, TOKYO:
“The market may interpret the hike as dovish, causing short-term JPY volatility. Longer-term target of 135–140 remains intact, supported by Fed easing and Japanese investors raising hedging ratios from historically low levels.
“Positioning favours a stronger Nikkei, steeper JGB curve, and weaker yen under Sanaenomics. With the BOJ terminal rate priced at 1.5%, most JGB weakness is already in the market.
“Focus now shifts to (BOJ Governor Kazuo) Ueda’s press conference tone and forward guidance — likely neutral, signalling gradual normalisation into 2026–27 without leaning too dovish or hawkish. Ueda faces a delicate balancing act.”
(Reporting by Reuters Asia markets team; Editing by Subhranshu Sahu)
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