Bank of Japan Raises Rate to 0.75%, Highest in Decades

The Bank of Japan raised its short-term policy rate by 25 basis points to 0.75 percent on December 19, 2025, marking the highest level in nearly three decades and signaling a continued shift away from decades of ultra-loose monetary policy amid persistent inflation pressures.

The unanimous decision, made at the conclusion of the central bank's two-day meeting, followed a similar hike in January and reflects growing confidence in sustained wage growth and price stability. Officials cited headline inflation at 2.9 percent in November, with core inflation above the 2 percent target for 44 consecutive months. In its statement, the Bank of Japan noted that real interest rates remain deeply negative, emphasizing a gradual, data-dependent approach to any further adjustments. Policymakers indicated readiness to raise rates if economic forecasts hold, potentially reaching 1 percent or higher by late 2026, while acknowledging accommodative conditions overall.

Global markets reacted with a mix of resilience and caution. The Japanese yen weakened modestly to around 156 per U.S. dollar, extending from 155.67 before the announcement, as the move aligned with expectations and failed to trigger...