As the Bank of Japan (BOJ) prepares to conclude its two-day policy meeting on Friday, December 19, markets are bracing for what could be its most significant interest rate hike in three decades. Analysts widely anticipate a 0.25 percentage point increase, lifting short-term rates to 0.75%—a move aimed at curbing inflation that has remained stubbornly above the 2% target since late 2021.
Masazumi Wakatabe, former BOJ Deputy Governor and current member of Japan’s top economic council, urged caution during a recent panel discussion. "If Japan’s neutral rate rises as a result, it would be natural for the BOJ to raise interest rates," he stated, emphasizing the need for measured adjustments to avoid destabilizing economic recovery efforts.
Corporate leaders have echoed these concerns. Akihiro Kaneko, president of the Confederation of Japan Automobile Workers’ Unions, warned that abrupt rate hikes could weaken exporters’ profitability, potentially limiting wage growth in fiscal 2026. "Sharp yen appreciation would erase expected profits," Kaneko noted, though he expressed confidence in businesses’ ability to adapt to moderate changes.
The impending decision highlights a growing divide between policymakers advocating prudence and those pushing for aggressive monetary tightening. With Japan’s core inflation rate hovering at 3.1% as of November 2025, the BOJ’s Friday announcement will likely set the tone for its strategy through mid-2026.
