Rpt:MNI POLICY: Ueda Sharpens Dec Rate Hike, Risks Credibility

Repeats story first transmitted at 0342 Dec 2, 2025

A hold at the Bank of Japan’s Dec. 18–19 meeting would be inconsistent with the bank’s recent market communications and would undermine its credibility, following Governor Kazuo Ueda’s comments on Monday that strongly indicated policymakers are set to raise the 0.5% rate this month, MNI understands.

Ueda said on Monday that the BOJ will consider the pros and cons of raising the policy rate and make decisions as appropriate at the upcoming meeting, clearly flagging the possibility of a near-term rate hike. 

Market pricing responded sharply to Ueda’s statements, now assigning an 80% probability to a rate hike this month and a 1.0% rate by the end of 2026. 

While board members routinely discuss the monetary policy outlook at each policy-setting meeting, Ueda’s explicit reference to December was notable given lingering market doubts over the timing of the next move. Some board members have recently stressed the need to raise the policy rate, but market participants remain divided, closely scrutinising Ueda’s remarks for clues on the probability of a hike.

Ueda did not attempt to cool market expectations. Instead, he appeared to reinforce the view that a rate increase is approaching. He also reiterated that raising the policy interest rate under accommodative financial conditions represents a process of easing off the accelerator toward stable economic growth and price developments, rather than applying the brakes to economic activity.

Markets interpreted Governor Kazuo Ueda’s comments on Monday as an opportunity to deliver a strong signal of his intentions ahead of the December meeting. (See MNI POLICY: Ueda Dec 1 Speech Crucial For BOJ Hike Timing) Officials believe a hold would significantly damage market trust in the central bank and undermine the BOJ's credibility.

INCOMING DATA

Ueda’s comments on Monday suggested that he does not expect upcoming data, including the BOJ’s December Tankan survey due on Dec. 15, to alter the bank’s thinking fundamentally.

Still, BOJ officials have not completely committed to a December hike, as they want surety that a rate increase will not undermine the 2% inflation target and wage growth. With more inflation and activity data due shortly, the bank has time to make a final judgement.

However, unless decisive negative shocks materialise, such as a burst of the AI investment bubble or a sharp downturn in the U.S. economy, the BOJ is unlikely to refrain from raising the policy rate this month. Officials also see little difference in the economic and inflationary impact of a hike in December versus January. The current 0.5% policy rate has neither overheated the economy nor significantly accelerated inflation, which Ueda noted.

Even if the rate were raised to 0.75%, it would not materially weaken economic activity nor be particularly effective in curbing inflation, suggesting there is no urgent need for rapid tightening.