Bank of Japan states it will continue its rate hike policy through 2026... "Accelerating the exit from deflation"

Bank of Japan Governor Ueda Kazuo reiterated the policy stance of maintaining a rate hike bias through 2026. Against the backdrop of Japan’s economic recovery momentum and the support from rising wages and prices, this move once again emphasizes the willingness to steadily advance monetary policy normalization.

On the 5th, at the New Year reception of the Japan Bankers Association in Tokyo, Governor Ueda mentioned that “the trend of moderate increases in wages and prices is likely to continue.” He stated that if such economic outlooks materialize, the Bank of Japan will gradually adjust its current accommodative monetary policy while implementing further rate hikes.

Governor Ueda explained that the background for adjusting the benchmark interest rate is “aimed at achieving price stability goals while steering towards sustainable economic growth.” This indicates that the Bank of Japan’s policy operations are not limited to simply managing inflation rates but also consider the recovery of long-term economic fundamentals. Especially given Japan’s long-standing struggle with deflation, establishing a structure where price increases occur alongside wage growth is one of the core policy objectives.

Regarding last year’s economic situation, Governor Ueda commented, “Despite external trade policies in the U.S. posing burdens on Japanese companies, the economy maintained a moderate recovery momentum,” and called it “a year that proved Japan’s economic resilience and stability.” This suggests that domestic demand and employment conditions remain strong, and market acceptance of rate hikes has been somewhat assured.

In fact, the Bank of Japan already raised the benchmark rate from 0.5% to 0.75% by 0.25 percentage points at the Monetary Policy Meeting on December 19, 2025. This is the highest level in about 30 years since 1995 and is regarded as the first step in gradually moving out of the zero-interest-rate era and towards formal rate normalization.

This policy stance is expected to continue this year. Financial market observers believe that the Bank of Japan will continue to closely monitor whether the trend of synchronized increases in prices and wages persists and will flexibly adjust interest rates accordingly. Once Japan’s monetary policy fully normalizes, it is also possible that there will be a gradual upward pressure on interest rates across the entire Asian financial market.