Japan's central bank may be gearing up to resume interest-rate increases as soon as next month, according to a former Bank of Japan economist who now watches the economy from the private sector.
Seisaku Kameda, who is now at Sompo Institute Plus, told Reuters that he still expects the BOJ to raise its policy rate to 1.5% at its December 17-18 meeting, unless market volatility remains elevated right up to the decision. If conditions stay choppy, he said the move could be pushed into January. His base case after that is a steadier rhythm: roughly one hike per quarter, taking the policy rate toward 2%.
That would mark a faster pace than Japan's recent, more cautious approach, which was designed to avoid choking off demand after decades of very low price growth. The BOJ has been moving gradually, but Kameda argues the central bank now needs to stay ahead of inflation that it says is running around its 2% target.
Why the BOJ might move now
The Bank of Japan has kept interest rates ultra-low for years, a policy that helped revive the economy but also left it with one of the most stimulative monetary stances among major central banks. As inflation has picked up, the BOJ has begun to normalise policy, but it has done so slowly, wary of repeating past mistakes where premature tightening stalled growth.
Kameda's view is that Japan is now better placed to handle higher rates. Corporate profits remain solid, and a weak yen combined with higher energy costs is keeping price pressures alive. That combination, he argues, gives the BOJ room to act without derailing the recovery.
The bigger risk, in his view, is not domestic but external. He specifically flagged a US downturn tied to a pullback in AI investment as a potential shock that could hit global growth hard and force the BOJ to pause. If that scenario unfolds, the central bank would likely hold off on further hikes until the outlook stabilises.
What a faster path means for markets
For investors, the key takeaway is not just the possibility of one more hike in December, but the prospect of a new, more predictable rhythm of quarterly increases toward 2%. That would give markets something to price in, rather than reacting to each meeting as a surprise.
Faster tightening in Japan tends to narrow the interest-rate gap between Japan and the US. That can reduce the appeal of borrowing in yen to fund higher-yielding investments elsewhere, a dynamic that can accelerate yen moves when markets get nervous. It also hits closest to home in the front end of Japan's government bond curve, where yields are most sensitive to the next few policy meetings.
A stronger yen and higher short-term rates can change the backdrop for Japanese stocks, especially exporters, whose overseas earnings are worth less when converted back into yen. That is a factor to watch heading into the December meeting if volatility does not cool.
The BOJ's path also matters for global markets. Japan is the world's third-largest economy, and its monetary policy can influence everything from Asian equities to the carry trade, where investors borrow yen cheaply to invest in higher-yielding assets elsewhere. A faster pace of hikes could ripple through those trades.
What to watch next
Investors will be watching several signals in the run-up to the December meeting. First, whether market volatility subsides enough for the BOJ to feel comfortable moving. Second, any fresh data on inflation and wages in Japan, which the central bank has said it is monitoring closely. Third, the health of the US economy, particularly anything that suggests a sharper slowdown in AI-related investment.
Kameda's comments echo a broader debate among economists about how quickly the BOJ can normalise policy. Some argue that Japan's inflation is still too weak to justify aggressive hikes, while others say the central bank is already behind the curve. The coming weeks will likely bring more clarity, but for now, the prospect of a December move is firmly on the table.
For everyday investors, the practical implication is that Japanese assets—stocks, bonds, and the yen—could see more volatility in the near term. If you hold Japanese equities or funds, it is worth understanding how a stronger yen and higher rates might affect your returns. As always, it is not about predicting the exact move, but about being prepared for the range of possibilities.
