BOJ Eyes December Rate Hike as Yen Weakness and Inflation Risks Build

Highlights:

• A Reuters poll shows 53% of economists expect the Bank of Japan to raise rates to 0.75% in December, with all respondents forecasting at least that level by March, at the time of writing.

• The yen’s sharp decline to multi-month lows and rising risks of imported inflation are strengthening the case for an early rate hike.
• Prime Minister Sanae Takaichi urges caution, but economists say wage trends and inflation pressures could push the BOJ to proceed with its first rate increase since January.

Majority of Economists See Hike Coming

Bank of Japan (BOJ) appears set to raise its policy rate to 0.75% from 0.50% at the December 18–19 meeting, according to a Reuters poll in which 43 of 81 economists — or 53% — expected the move at the time of writing. Meanwhile, all forecasters who answered the question expect rates to reach at least 0.75% by the end of the first quarter of 2026.

Yen Slide & Inflation Pressure Strengthen Case

The yen has plunged to a 10-month low against the dollar and hit record lows versus the euro, raising concerns that imported inflation could intensify. With the currency weakening, the BOJ’s move toward rate normalization is increasingly backed by inflation risks and the need to steady markets.

Policy Context: Government Push Meets Central Bank Caution

Sanae Takaichi, Japan’s prime minister, has urged the BOJ to coordinate with government reflation efforts and proceed cautiously given the fragile economy. The economy recorded its first contraction in six quarters during July–September, though underlying private demand remains firm.

What’s Next for Markets & Policy

Investors are now closely watching upcoming wage negotiations and labour-market data — key inputs for BOJ Governor Kazuo Ueda in deciding the pace of future rate hikes. For the BOJ, the window to act appears open if wage pressure holds and economic signals improve; otherwise, it may opt for further caution.

Why It Matters

A move toward rate normalization by the BOJ after years of ultra-loose policy would mark a major shift in global monetary dynamics. With the yen’s decline weighing on inflation prospects and the government pushing for reflation, the BOJ is under pressure to act. For Japanese households, higher borrowing costs could emerge sooner than expected; for financial markets, the decision could spark shifts in currency, bond and equity trades.

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