Reporting from Tokyo — December 16, 2025 By TGV World News Correspondent TGV World News Desk
📰 Bank of Japan Set to Raise Interest Rates to 30-Year High as Inflation Pressures Build
Reporting from Tokyo — December 16, 2025
By TGV World News Correspondent
TGV World News Desk
Tokyo:
The Bank of Japan (BOJ) is preparing to raise interest rates to their highest level in nearly three decades, marking a historic shift away from the country’s long-standing ultra-loose monetary policy as inflationary pressures continue to build.
According to a report by Reuters,
policymakers are expected to lift the benchmark rate to around 0.75%, a level not seen since the mid-1990s. The move reflects growing confidence within the central bank that Japan’s economy can withstand tighter financial conditions after years of deflation and sluggish growth.
🔗 Source:
https://www.reuters.com/world/asia-pacific/bank-japan-take-interest-rates-30-year-high-2025-12-16/
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🔍 Key Points
🏦 Bank of Japan preparing rate hike to 30-year high
📈 Inflation remains above BOJ’s long-term target
💴 Major shift from decades of easy monetary policy
🌍 Global markets watching yen and bond reaction
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📊 Why the BOJ Is Changing Course
Japan has spent decades battling deflation, relying on near-zero interest rates and massive bond-buying programs to stimulate growth. However, recent data shows sustained inflation driven by higher wages, rising energy costs and stronger domestic demand.
BOJ officials believe price increases are no longer temporary, prompting the central bank to gradually normalize policy. Analysts say the expected hike signals the end of Japan’s era as the world’s cheapest borrowing market.
Economists cited by Reuters noted that wage growth — a key condition for tightening — has shown enough momentum to justify further action.
🔗 Source: https://www.reuters.com/world/asia-pacific/japan-passes-118-billion-extra-budget-fund-its-biggest-post-covid-stimulus-2025-12-16/
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🌍 Impact on Markets and Yen
Financial markets have reacted cautiously, with investors closely monitoring the Japanese yen and government bond yields. A rate hike could strengthen the yen, affecting exporters who have benefited from a weaker currency in recent years.
Global investors are also watching Japan’s policy shift, as higher yields may encourage capital to flow back into Japanese assets after years of outflows.
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🏛️ Government and Policy Context
The move comes alongside Japan’s approval of a massive post-pandemic stimulus package aimed at supporting households and businesses amid rising living costs. Together, fiscal support and tighter monetary policy highlight a delicate balancing act for policymakers.
BOJ officials have emphasized that any tightening will remain gradual and data-driven, seeking to avoid derailing economic recovery.
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🧠 Expert Analysis
Monetary policy experts say the decision represents a turning point not only for Japan but for global markets accustomed to cheap Japanese capital.
“This is a psychological shift as much as an economic one,” said a Tokyo-based economist. “Japan is signaling it is finally exiting its deflation mindset.”
However, analysts warn that excessive tightening could hurt consumption if wage growth fails to keep pace with rising prices.
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🔮 What Happens Next?
Markets expect the BOJ to proceed cautiously after the initial hike, assessing inflation trends, wage negotiations and global economic conditions. Any further increases are likely to be gradual, with clear communication to avoid market volatility.
For now, Japan’s central bank appears determined to move toward policy normalization after decades of extraordinary measures.
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📌 Conclusion
The Bank of Japan’s planned interest rate hike to a 30-year high marks a historic moment for the country’s economy. As inflation reshapes policy priorities, Japan is stepping into a new monetary era — one that could have lasting implications for global financial markets.
