The Bank of Japan appears prepared to raise interest rates later this month, marking a significant shift from its long-standing ultra-loose monetary stance. The development highlights what policymakers are planning, who within the government is backing the move, where financial pressures are emerging, why the rate increase is likely, when the decision may be formalised, and how the change could affect global markets.

Sources say the central bank is considering lifting its policy rate from 0.5 percent to 0.75 percent, a step that reflects building inflation pressure and ongoing wage gains in the Japanese economy. Government officials have indicated they would support the move, arguing that normalising rates is necessary to stabilise currency markets and strengthen investor confidence.

Bond markets responded quickly to the news, with yields on long-term Japanese government bonds rising as traders reassessed the viability of long-established carry-trade strategies that rely on Japan’s historically low interest rates. Analysts say the shift could influence global capital flows as investors reposition portfolios to account for higher Japanese yields.

The planned rate hike follows months of data showing firmer inflation and more resilient economic activity than previously expected. Policymakers believe the domestic economy can withstand slightly higher borrowing costs, especially if wage growth continues and export demand remains steady through the first quarter of 2026.

If implemented, the move would mark an important turning point for Asia’s third-largest economy and signal the end of more than a decade of near-zero interest rates. Economists warn, however, that tightening policy too quickly could risk slowing domestic consumption, particularly in sectors still recovering from earlier downturns.

Source: Reuters.