The Bank of Japan's December policy meeting minutes have just been released, and all market expectations of a gradual rate hike instantly collapsed. This is no longer a question of "whether to raise rates," but a mandatory question of "how fast" to do so.

Japan has officially entered a rate hike cycle, and the pace may be much faster than previously anticipated. Although the policy interest rate has been raised to 0.75%, reaching a nearly 30-year high, the Bank of Japan is not just looking at this number. The key is the actual interest rate—at the current inflation level, Japan's real interest rate remains low globally, indicating that the era of easing is far from over, and the central bank has only just taken the first step to exit easing.

The biggest highlight of the meeting is actually the internal disagreement within the central bank being brought to the surface. The hawks have completely abandoned the slow pace of once-a-year hikes and now advocate for a phased approach within a few months. The doves, while hesitating and discussing how the Fed might move and avoiding decoupling the global monetary cycle, are ultimately still debating the speed of rate hikes; no one dares to oppose raising rates altogether.

The logic is quite straightforward: the yen is depreciating, long-term interest rates are rising, and these all point to the same source—the real interest rate is too low. If rate hikes are delayed, inflation expectations could spiral out of control, long-term bond yields will soar, and risks will accumulate.

The mainstream market view is this: another hike in June 2026, with the neutral interest rate target set between 1.25% and 1.5%, leaving 75 basis points of room for rate increases. Once the minutes were released, the yen immediately strengthened, and Japanese bond yields rose across the board, with the 30-year government bond yield jumping 1.62% in a single day.

Most notably, Japan is no longer the role of unconditional provider of cheap liquidity to the world. This shift in identity will have a profound impact on global capital flows and is worth the entire market rethinking.