The Bank of Japan made an important decision on December 19th—officially announcing a 25 basis point rate hike, raising the interest rate from 0.5% to 0.75%, which is the highest level since 1995. To clarify the timeline, the policy was not announced on Christmas Eve the 24th, but was decided on the 19th, and there were no additional new actions in the market on the 24th.

Since officially abandoning negative interest rates in March last year, this is the fourth rate hike by the Bank of Japan. Ueda Haruhiko revealed during the meeting that if future economic and price trends align with October expectations, there will be further rate hikes in 2026. Let's not rush; currently, Japan's real interest rate is still negative, and the easing environment persists. Whether rates can continue to rise depends on how the wage-price cycle develops.

Why is the Bank of Japan rushing to act now? The first reason is that inflation is indeed resilient—core CPI has exceeded 2% for 44 consecutive months, reaching 3% in November. The second reason is exchange rate pressure; the yen has been depreciating, and the central bank wants to push for normalization while the Federal Reserve is cutting rates. The third angle is expectation management; sufficient forward guidance has limited market shocks, with the 10-year Japanese government bond yield only rising slightly to 2.02%, and short-term yen fluctuations are minimal.

Regarding the pace of rate hikes in 2026, the mainstream market expectation is for another 25bp increase in June, July, or October, pushing rates to 1.0%, with the terminal rate possibly between 1.0% and 1.25%. However, there are constraints—Japan's economic recovery is somewhat fragile, with Q3 GDP contracting by 0.6% quarter-over-quarter, and high debt levels mean that aggressive rate hikes could hinder economic growth. $BTC $ETH $BNB

From a global perspective, how will this round of rate hikes stir the markets? The yen may find medium-term support, which will weaken the attractiveness of yen carry trades and promote capital flows back to Japan. In the Japanese bond market, long-term yields will rise, bond market volatility will increase, and holdings by financial institutions will come under pressure. Global liquidity is rebalancing, which is positive for Japanese export stocks, but less friendly for highly leveraged companies and real estate stocks.