The Bank of Japan has signaled it may raise interest rates soon, marking a potential end to decades of ultra‑loose monetary policy.
The announcement, made Tuesday, triggered immediate reactions in financial markets, with government bond yields climbing and the yen strengthening against the U.S. dollar.
Governor Kazuo Ueda suggested that persistent weakness in the yen and rising inflationary pressures have forced the central bank to consider tightening policy.
For years, Japan has maintained near‑zero interest rates to stimulate growth, but the current environment has made imported goods more expensive and strained household budgets.
Businesses are bracing for higher borrowing costs, while households may see relief from inflation if the yen stabilizes. Global investors are watching closely, as Japan’s monetary policy has long influenced international capital flows. A rate hike would ripple across Asia and beyond, affecting trade, investment, and currency markets.
Economists expect the BOJ to proceed cautiously, possibly implementing a modest increase in early 2026 to avoid destabilizing the fragile recovery.
By Michelle Ndaga.
