Is the Bank of Japan’s Hawkish Turn Reshaping Global Market Sentiment
About the December BoJ Rate Decision
The Bank of Japan has raised its short-term policy rate by 25 basis points to around 0.75%, marking the highest interest rate level seen in nearly three decades. The move was largely in line with street expectations but carried distinctly hawkish undertones through its guidance on inflation, wages, and future policy normalisation.
The decision signals Japan’s continued exit from ultra-loose monetary policy, while still emphasising that real interest rates remain deeply negative and accommodative conditions will persist for now.
Key Takeaways From the BoJ Statement
🔹 Policy rate raised by 25 bps to ~0.75%, a 30-year high.
🔹 Underlying CPI inflation continues to rise moderately.
🔹 Wages and prices expected to increase in tandem.
🔹 Likelihood of achieving 2% price stability has increased.
🔹 Uncertainties around the US economy and tariffs have receded.
The BoJ noted that firms are likely to continue raising wages steadily next year, following solid wage hikes this year. Importantly, the risk of wage-setting behaviour being interrupted was described as low, reinforcing confidence in sustained domestic demand.
Macro Outlook Highlighted by the BoJ
| Area | BoJ View |
|---|---|
| Economic growth | Moderate and steady |
| Labour market | Tight, with high corporate profits |
| Inflation trend | Moderate rise, wage pass-through continues |
| Real rates | Remain deeply negative |
Despite the rate hike, the BoJ reiterated that accommodative financial conditions will continue to firmly support economic activity. However, it also made clear that if the October 2025 Outlook materialises, further rate hikes and adjustment of monetary accommodation will follow.
|
Immediate Market Reaction
🔹 Yen weakened further against the US dollar. 🔹 Dow futures slipped in early trade. |
What Markets Are Watching
🔹 Nikkei reaction post lunch session. 🔹 Global risk sentiment after BoJ hawkish cues. |
The rate decision triggered a reassessment of risk across global equities, with US futures trading lower and all eyes on the Nikkei as trading resumes after the lunch break. While the hike was expected, the clarity on future tightening has increased sensitivity to global liquidity shifts.
For India, the implications remain indirect but relevant. Persistent global tightening, even at a gradual pace, can influence foreign fund flows, currency dynamics, and near-term risk appetite in emerging markets.
👉 Global macro cues such as central bank policy shifts are tracked alongside index behaviour through Nifty Tip.
Investor Takeaway: Derivative Pro & Nifty Expert Gulshan Khera, CFP® notes that Japan’s move confirms a slow but decisive exit from ultra-easy money. While real rates remain negative, the direction of policy is clear. Investors should stay alert to global liquidity recalibration and its spillover into equity and currency markets. Such macro-aware perspectives are curated at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
