Japan is finally at that point again, the point where everyone in the market sits up a little straighter. The Bank of Japan hasn’t been an active player for years, but now the tone is shifting. The yen is at multi-month lows, inflation pressure is building from imports, and economists think December could be the moment the BOJ finally moves.
It’s still a knife-edge decision, but it’s the closest we’ve been to a real shift in Japanese monetary policy in a long time.
Let’s break this down simply.
Here’s What You Need to Know
1. A December Hike Is Now the Base Case
A Reuters poll shows 53% of economists expect the BOJ to raise short-term rates from 0.50% to 0.75% at the December 18–19 meeting.
Not a huge move but symbolically massive. Japan hasn’t touched rates since January’s 25-bp hike.
The story here isn’t the number. It’s the shift in direction.
2. Yen Weakness Is Forcing the BOJ’s Hand
The yen has been hammered, the worst-performing G10 currency in recent months.
It’s now sitting at a 10-month low vs USD and the weakest level ever against the euro.
A falling yen means more expensive imports + higher inflation + more pressure on the BOJ to act. This is why economists say conditions for a hike are “falling into place.”
3. Wage Growth and Government Pressure Both Matter
Prime Minister Takaichi wants the BOJ to move slowly, but wage negotiations in early 2025 will be the real deciding factor. If wage momentum improves, it gives the BOJ the green light.
Most economists still expect 0.75% by March, and potentially 1.00% by end-2026, slow but steady normalisation.
4. What This Means for JPY Pairs
A December hike or even a strong hint could finally give the yen room to breathe.
But until then, JPY pairs stay sensitive to headlines.
USD/JPY: Any hint of a hike could trigger fast downside moves after months of yen weakness.
EUR/JPY: Overextended. Vulnerable if BOJ signals tightening.
GBP/JPY: Still volatile, rate expectations in both UK and Japan can swing this pair hard.
The market has priced in yen weakness for months; it hasn’t priced in BOJ action.
My Takeaway
Japan doesn’t move often but when it does, the market feels it.
A December hike isn’t guaranteed, but it’s finally realistic. That alone makes JPY pairs worth watching closely. If the BOJ leans hawkish next month, the unwinding on USD/JPY, EUR/JPY, and GBP/JPY could be sharp.
For now, let’s keep our levels tight and flexible. The yen doesn’t stay quiet forever and this might be the moment it wakes up.