The Bank of Japan's long era of near-zero interest rates may be ending faster than some expect, if the views of its former chief carry weight. In a new book, Haruhiko Kuroda, who led the BOJ for a decade until 2023, says policymakers could consider raising rates by 25 basis points at every meeting. That is a quicker pace than the caution urged by his former deputy, Masazumi Wakatabe.
Kuroda's comments arrive as Governor Kazuo Ueda continues to unwind the BOJ's ultra-loose monetary policy. The bank lifted its policy rate in September to 1.25%, its highest level in 31 years, according to Reuters. That move marked a significant step in what the BOJ calls "normalization" — getting policy back to a more ordinary setting after years of negative rates and massive bond buying.
What Kuroda is really saying
Kuroda frames the challenge as a timing problem. Move too fast and you risk choking off economic growth. Move too slowly and the bank may struggle to finish the job of normalization. His answer is to keep 25-basis-point steps on the table at each meeting, so officials can adjust quickly toward a level that neither stimulates nor restrains the economy.
That level is often called the "neutral rate" — the interest rate that keeps inflation stable and the economy running at full capacity without overheating. No one knows exactly where that is for Japan, but Kuroda's suggestion implies the BOJ should be ready to move in steady increments until it gets there.
For everyday investors, the key takeaway is that the BOJ is no longer in a holding pattern. Even floating the idea of regular quarter-point moves can shift expectations for where Japanese short-term interest rates head next, because every meeting becomes a live decision rather than a placeholder.
Wakatabe's warning
Not everyone agrees with that approach. Masazumi Wakatabe, who served as Kuroda's deputy, published a separate book in September warning against moving too early. His concern is that Japan's growth has been weak and that a meaningful share of recent inflation looks driven by higher import and input costs. That kind of inflation can fade without stronger demand, making early hikes harder to justify.
In other words, Wakatabe sees the current price pressures as potentially temporary. If the BOJ raises rates too aggressively and inflation then cools on its own, the bank could end up slowing an economy that never really needed the brake.
This is a classic central bank dilemma: act too soon and you risk a downturn; act too late and you risk letting inflation become entrenched. The two former officials represent opposite sides of that debate.
What it means for markets
A 1.25% policy rate could still be just the starting point if 25-basis-point steps stay in play. Traders will watch every BOJ meeting for hints of another move, and that can have ripple effects across global markets.
The most immediate impact is on the yen. If traders think Japanese rates will catch up faster to overseas rates, the incentive to borrow cheaply in yen and buy higher-yielding assets elsewhere can shrink. That dynamic, known as the "carry trade," has been a popular strategy for years. When it unwinds, it tends to create more two-way risk in USD/JPY around BOJ dates. The yen has already been under pressure, with the currency slipping to 157.73 as traders weigh the BOJ's next move.
There can also be repricing in the front end of Japan's government bond curve, where investors first adjust to the possibility of "one more 25 basis points." That means bond yields could move more sharply than in the past, affecting everything from Japanese bank profits to global fixed-income portfolios.
For investors with exposure to Japanese assets, the message is to expect more volatility around BOJ decisions. The era of predictable, ultra-low rates is over, and the path back to normal is unlikely to be smooth.
The bigger picture
Japan's situation is part of a broader global shift. Central banks around the world spent years keeping rates low to support growth, and now many are trying to find the right level without breaking anything. The BOJ is a latecomer to that process, having kept rates negative for longer than most.
Kuroda's book is a reminder that even the architects of ultra-loose policy now see the need to move. But the debate with Wakatabe shows how uncertain the path remains. For now, the BOJ's next moves will depend on incoming data — inflation, wages, and growth — and on how markets react to each step.
As always, the BOJ will be watching the yen. A weak yen can boost exports but also raises import costs, which feeds inflation. A strong yen can hurt exporters but helps consumers. The central bank's job is to balance all these forces, and the 25-basis-point option gives it flexibility to adjust quickly if needed.
For investors, the practical takeaway is simple: keep an eye on BOJ meetings and on any comments from officials about the pace of hikes. The days of ignoring Japanese monetary policy are over.
