19.12.25 - BoJ raises interest rates
Today, Bank of Japan (BoJ) raises interest rates. The central bank expectedly hiked its benchmark rate by 25 basis points to 0.75%, the highest level since 1995.
Fresh inflation data underpins the move: a key consumer price gauge rose 3% year-on-year in November, extending the run of inflation at or above the BOJ’s 2% target to 44 consecutive months.
Markets:
Equities: The Nikkei 225 held most of its earlier gains, indicating no immediate shock to risk sentiment.
Bonds: Japanese government bond yields moved higher, with the 10-year yield climbing above 2%, a level not seen since 2006.
JPY: The yen weakened by more than 1% to 157.10 versus the US dollar
My View: Japan is no longer the anchor of global zero-interest-rate liquidity it once was. While markets appear calm for now, the shift in Japanese monetary policy has the potential to ripple across currencies, bond markets, and leveraged risk positions globally.
This policy shift matters less for today’s market reaction and more for what comes next.
Rising borrowing costs in yen terms change the global funding landscape. For years, Japan has been a key source of cheap leverage. As rates rise, that assumption starts to break.
The yen remains structurally weak, which is a growing risk for Japan itself. A falling yen keeps import prices elevated and sustains inflation — potentially forcing the BOJ into a more aggressive tightening path than markets currently expect.
Deleveraging risk: Many global investors have borrowed in yen to fund positions elsewhere. Higher Japanese rates increase funding costs and raise the risk of sudden, disorderly deleveraging, similar to episodes already seen earlier this year.
Swiss franc back in focus: In a world where yen funding is no longer “free,” currencies associated with stability and low rates, such as the Swiss franc, could regain importance as alternative funding or safe-haven currencies.
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