The Bank of Japan will hold a monetary policy meeting this Thursday, and the market widely expects the interest rate to be raised to 0.75%. What does this level mean? The first time in 30 years. Since 1995, Japanese interest rates have never stayed at this level.

Less than 20 hours before the meeting, traders around the world were already buzzing in their chat boxes. One question kept being asked: if the Bank of Japan really raises interest rates, how will the global financial markets react?

From the data, the market has already given its answer. As of December 18, the Nikkei 225 index fell 470.17 points to close at 49,042.11; USD/JPY is at 155.72. The market has already priced in this rate hike expectation. The probability of a rate increase has soared to over 94%, making it a certainty.

This is not just Japan’s matter. Global carry trade strategies have long linked the Bank of Japan’s every move with various assets from U.S. Treasuries to Bitcoin. The end of the era of cheap yen means a reconfiguration of global liquidity.

**Does Japan really need to raise interest rates?**

This question starts with changes in Japan’s economy. The Japan that was once mired in deflation is now a thing of the past.

As of October this year, Japan’s core CPI has maintained above the Bank of Japan’s 2% target for 28 consecutive months. You read that right—28 months in a row. For a country long troubled by deflation, this is a major event. The ghost of deflation is fading away.

High inflation does not appear out of nowhere. Behind it are rising wages and simultaneous increases in service sector prices. During spring labor negotiations, Japanese companies’ average wage hikes reached their highest level in nearly 34 years. Barbers want raises, caregivers want raises, and the entire service industry is demanding higher wages.

Service sector PPI data has been climbing. What does this indicate? Inflation is no longer imported “cost-push inflation,” but rather “endogenous inflation” growing from within. This type of inflation is more stubborn and harder to suppress.

Faced with such a situation, the central bank can no longer afford to remain passive. Raising interest rates has become an inevitable choice. Not only inevitable but also urgent.