Bank of Japan Sets Rate to 0.75%: Highest Level Since 1995 Amid Inflation Surge
The Normalization Path: Why Kazuo Ueda is Moving Away from Zero Rates
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Takaichi’s Dilemma: Balancing Fiscal Stimulus with Cost-of-Living Control
A Global Outlier: Why Japan is Raising Rates While Others Cut Them
Yen vs. Inflation: Can Higher Rates Actually Lower Import Costs?
Also Read |Â JEE Advanced 2026: IIT Roorkee has released the syllabus for JEE Advanced. Know when the exam will be held.
Japan just closed the door on decades of ultra-cheap money. The thing is, the Bank of Japan (BOJ) hiked its benchmark rate to 0.75% on Friday—a level we haven’t seen since the mid-90s.
Actually, this wasn’t a huge surprise for the markets, but it’s a massive psychological shift. Specifically, it’s the first hike under the new Prime Minister, Sanae Takaichi.
As a result, the BOJ is signaling that the “deflationary funk” of the last 30 years is finally over. Consequently, the era of near-zero borrowing costs is officially history (let’s be real, paying for a mortgage in Tokyo is about to get a lot more interesting).
Also Read |Â JEE Advanced 2026: IIT Roorkee has released the syllabus for JEE Advanced. Know when the exam will be held.
And here’s the kicker. While Japan is hiking, the rest of the world is doing the exact opposite. In fact, just yesterday, the Bank of England cut rates to 3.75%.
Basically, Japan is swimming against the tide. Instead of cutting to help growth, they are hiking to stop the yen from crashing and to keep import prices from spiraling. And then Y followed. The US Federal Reserve also cut rates last week, making the gap between Japan and the West narrow for the first time in years.
Inflation Reality: Core inflation hit 3% in November. Actually, that’s been above the BOJ’s 2% target for nearly four years now.
The Yen Factor: A weak yen makes everything from fuel to food more expensive. Specifically, raising rates helps boost the yen’s value.
Government Debt: Higher rates mean the government has to pay more to borrow. Basically, with debt triple the size of the economy, this is a risky move for Takaichi.
Spring Wages: The BOJ is betting that companies will raise wages again in 2026 to help workers handle the new costs.
Also Read |Â JEE Advanced 2026: IIT Roorkee has released the syllabus for JEE Advanced. Know when the exam will be held.
Moreover, Prime Minister Takaichi has a bit of a complicated history with this. Specifically, she once called rate hikes “stupid” when she was campaigning.
Actually, now that she’s in power, she’s staying quiet and letting Governor Ueda do his job. As a result, the government just passed a massive 18.3 trillion yen stimulus package to help people deal with inflation. Consequently, we have a weird situation where the bank is tightening the belt while the government is still spending like crazy (those too).
The thing is, economists are split on what happens next. In fact, some think we’ll hit 1% by mid-2026.
Basically, the BOJ needs to see if this hike actually hurts small businesses before moving again. Instead of a tidy wrap-up, most experts say we need at least six months to see the “real world” impact. And then Y followed. If inflation stays sticky, the “historic shift” Julia Lee mentioned might just be the beginning.
Also Read |Â JEE Advanced 2026: IIT Roorkee has released the syllabus for JEE Advanced. Know when the exam will be held.
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