2025-12-29 14:23:02

After the release of the Bank of Japan's December meeting minutes, the market has gained a clearer understanding of the future interest rate trajectory for the yen—rate hikes are the main trend, with the only question being the pace.

Currently, the policy interest rate for the yen has risen to 0.75%, marking nearly a 30-year high. However, after adjusting for inflation, the real interest rate remains among the lowest globally. The central bank explicitly stated in the minutes that the goal is to gradually align interest rates with international levels.

Interestingly, there are disagreements within the central bank regarding the pace of rate hikes. The more aggressive members advocate for raising rates every few months and oppose large single increases or long intervals between hikes, reflecting a hawkish stance. Conversely, dovish members suggest that policy adjustments should not be solely based on inflation data but should also consider the direction of overseas rates such as the Federal Reserve, along with a cautious assessment of the yen's reserve currency status—indicating a more cautious approach.

The minutes pointed out that the current yen depreciation and rising long-term interest rates are closely linked to low real interest rates. The central bank needs to tighten policies promptly to curb inflation expectations and prevent long-term bond yields from rising further. Based on current market expectations, the next rate hike is anticipated around June 2026, which would increase the frequency of hikes from once a year to twice a year. There is still room for a 75 basis point cut, with the goal of achieving the target interest rate around 2027.

Following the release of the minutes, the market responded immediately: the yen appreciated slightly, and the yields on 20-year and 30-year Japanese government bonds both rose, with the 30-year yield increasing by 1.62%. Behind this change are two forces—on one hand, the strengthening of rate hike expectations reduced arbitrage trading, leading to yen appreciation and higher bond yields; on the other hand, concerns about future inflation are also pushing up long-term yields. Overall, the market's reaction to the central bank's hawkish stance remains quite sensitive.

View Original

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.

7 Likes

Reward
7
4
Repost
Share

Comment

0/400

HodlVeteran

· 8h ago

The Japanese Yen is about to take off. Bro, I already experienced a setback in Japanese bonds back in 2018. Looking at this momentum now, it feels like the bear market is knocking again. Attention to all RMB carry trade enthusiasts: the yen appreciation arbitrage is about to tighten, don’t get caught being the chives. The internal conflicts within the central bank indicate that things are getting serious. The aggressive hawkish stance this time is definitely going to cause a sell-off. 0.75%—still claiming it's the lowest tier? That logic is mind-boggling. The problem is, when the real interest rate is negative, the market has long been unable to sit still. Long-term bond yields rising by 1.62%—if you're still going all-in on Japanese bonds, I advise you to get out now, don’t wait until 2027 to cry.

View OriginalReply0

Ser_This_Is_A_Casino

· 8h ago

The Bank of Japan's internal fight between hawks and doves, and the result is that the market can't get a clear read The yen is about to take off, and arbitrage trades need to come to an end The 30-year bond yield has directly soared to 1.62%, this pace is quite fierce Wait, can they really hold out until 2027 to achieve their goals? Hmm The radical faction comes around every few months, and I just want to know if the Japanese economy can handle it The actual interest rate remains the lowest globally, still hesitating, how conservative is that? The frequency of rate hikes has doubled, Japanese people's lives are about to change Inflation expectations are no longer sustainable, long-term bond yields are soaring, what can retail investors still play? Dovish arguments sound like they're just delaying time

View OriginalReply0

SatoshiNotNakamoto

· 8h ago

Still worried about the yen? Looking at the longer-term, the Bank of Japan still needs to continue raising interest rates; there's no other way. The hawks and doves are still fighting internally, but the outcome has long been decided — real interest rates are too low, and if they don't move soon, it will be over. The market reacts so quickly, indicating that everyone has understood and is just waiting for the interest rate hike in 2026 to confirm their expectations. Honestly, the surge in Japanese bond yields is a bit frightening; those holding long-term should be cautious.

View OriginalReply0

MetaMaskVictim

· 8h ago

The Bank of Japan's recent actions are really playing both sides, with hawks and doves clashing, and the market directly translating it as— the yen will appreciate, and the arbitrage opportunities will disappear. It's another big year for rate hikes, with the frequency doubling starting in 2026. For those holding Japanese bonds, is this really good news or bad news? It's giving me a headache. The 30-year bond yield skyrocketed to 1.62%, isn't this increase outrageous? The shadow of inflation really hasn't disappeared. The interest rate target won't be in place until 2027? This pace is a bit dragging, feels like it's still dragging its feet. The actual interest rate being the lowest globally should be addressed quickly, there's no doubt about that, but in practice, each step is more conservative than the last.

View OriginalReply0