The Bank of Japan is set to make a major move this week. The meeting will be held on December 18th, and the results will be announced on the 19th (Friday). The market has already largely priced in a rate hike—OIS pricing shows a 94% probability.

Just look at the data: institutional expectations are unanimous, and a 25 basis point increase is certain, raising the policy rate from 0.5% to 0.75%. This level may not sound high, but it is the highest since 1995 in Japan's history and the first rate hike since the beginning of 2025.

Why so determined? There are three reasons—persistent inflation exceeding the 2% target, unresolved yen depreciation pressures, and improvements in wage negotiations. The central bank officials have also been signaling hawkish views lately, so the market was already well prepared. This is the last monetary policy meeting of the year, and the Bank of Japan is aiming to end 2024 on a strong note.