The Bank of Japan is expected to raise interest rates to the highest level in thirty years

December 18 — Markets widely expect the Bank of Japan (BOJ) to raise its overnight call rate by 25 basis points to 0.75% at this Friday’s policy meeting, marking its first rate hike since January of this year and pushing the benchmark interest rate to its highest level since 1995. Under Governor Haruhiko Kuroda, the policy committee is expected to unanimously approve the hike. Some members already backed a rate increase at the two prior meetings. Recent data shows Japanese wage growth remains robust, while U.S. tariff impacts have been less than expected—further bolstering market confidence in the move. Market participants note investors now are focused on the BOJ’s stance on future rate moves. Insiders say even with the rate hitting 0.75%, some central bank officials still see the “neutral rate” as unmet, with a few even calling 1% too low. Analysts warn a more hawkish BOJ signal could stabilize the yen but also push up bond yields, pressuring the Japanese government as it drafts next fiscal year’s budget. Overnight Index Swap (OIS) rates put the probability of a hike at this meeting at ~95%—nearly double its level at the start of last month. The policy statement is expected around noon local time, with Kuroda scheduled to hold a press conference at 3:30 p.m.