The Bank of Japan (BoJ) has hiked its overnight policy rate by 25 basis points (bps) to 0.75% on Friday, 19 December 2025, as expected, its highest level in 30 years.
In its policy statement, the BoJ said it will continue raising the policy rate as long as economic activity and inflation evolve in line with its projections, signalling a conditional bias toward further tightening. Policymakers noted that the probability of achieving the baseline outlook has increased, underscoring growing confidence that inflation is becoming more entrenched rather than transitory.
The BoJ also reaffirmed its commitment to achieving the 2% inflation target in a sustainable and stable manner, while guarding against overly aggressive tightening that could disrupt financial conditions. Officials highlighted that wages and prices are expected to rise at a moderate and coordinated pace, reinforcing the view that inflation is increasingly underpinned by domestic demand rather than one-off cost shocks.
In essence, the BoJ is signalling its intention to continue a gradual rate-hiking path into 2026, with a clear emphasis on managing volatility in the Japanese Government Bond (JGB) market. Policymakers are wary that a rapid, one-way rise in 10-year and 30-year JGB yields could tighten financial conditions prematurely and undermine Japan’s economic growth prospects.
Markets now await further clarity from BoJ Governor Ueda’s press conference at 0630 GMT on how cautiously the BoJ intends to proceed into 2026 and beyond.
The Nikkei 225 advanced for a second straight session, up 0.8% intraday at the time of writing, rebounding after a four-day pullback that began on Friday, 12 December 2025.
We will now highlight several technical factors that support the BoJ’s current gradual and bit-sized monetary tightening policy, which, in turn, leads to a stronger JPY, and is unlikely to trigger a significant major corrective decline sequence in the Nikkei 225.
Gone are the days when a broad major bullish trend of the Nikkei 225 requires a weak JPY to support it.
