BOJ Signals First Major Rate Hike in Years, Shifting Global Market Dynamics

Japan’s central bank appears ready to shift course. Bank of Japan Governor Kazuo Ueda signaled this week that policymakers are actively weighing a rate hike at the upcoming December 18–19 meeting — the clearest indication yet that the world’s last major holdout of ultra-loose monetary policy may be preparing to tighten.

Markets reacted quickly. The yen strengthened against the dollar and Japanese government bond yields climbed to levels not seen since 2008, as traders recalibrated expectations around Japan’s rate trajectory. Probability of a December hike now stands near 75–80%, compared with around 60% just days earlier. For a market long conditioned to assume BOJ stability, the shift represents a meaningful break in narrative.

A policy move of this kind would have implications well beyond Japan’s borders. A stronger yen could reshape the currency landscape for global investors, affecting returns on unhedged positions and increasing the importance of FX strategy within diversified portfolios. At the same time, rising JGB yields may draw capital back into Japan, narrowing yield differentials with U.S. and European bonds and potentially redirecting fixed-income flows across regions.

This moment also underscores a notable divergence in global monetary cycles: while several Western central banks prepare for easing amid slowing growth, Japan is leaning in the opposite direction as inflation gains firmer footing. Such cross-current dynamics can influence everything from equity rotations to carry trades to relative bond-market valuations.