Bank of Japan 9:0 unanimous rate hike! Why is the Japanese Yen not appreciating but instead falling?

The Bank of Japan unanimously approved a 25 basis point rate hike with a 9:0 vote, marking the first time under Governor Ueda Kazuo’s tenure that “everyone is betting on a rate increase.” However, after the announcement, the yen initially strengthened against the dollar but quickly retreated, closing Friday at 155.86. The key signal is embedded in the central bank’s statement: “Real interest rates are expected to remain significantly negative, and an accommodative financial environment will continue to strongly support economic activity.” This suggests that, despite the nominal rate hike, the actual monetary policy remains accommodative, making it difficult for the yen to truly strengthen.

9:0 Unanimous Vote on Rate Hike: Surface Consensus and Actual Divergence

The BOJ’s rate hike was approved with a 9:0 vote, indicating a high level of consensus among policymakers. All 50 surveyed economists predicted that the BOJ would take a rate increase this time, and this “unanimous expectation” is extremely rare in the bank’s history. Usually, there are 1-2 dissenting votes; a unanimous vote implies broad agreement on the necessity and timing of the hike.

However, behind the unanimity may lie compromises. The BOJ’s statement emphasizes that if economic and price outlooks unfold as currently judged, further rate hikes are expected. But the critical wording is “gradual adjustments” and “maintaining an accommodative financial environment.” This indicates that, although nominally raising rates, the bank does not intend to pursue aggressive tightening but rather adopts a “gradual normalization” strategy.

Three Major Considerations Behind the BOJ’s 9:0 Rate Hike

Clearer Inflation Trend: Core inflation remains modestly rising, with price trends and outlooks for the second half of the year roughly aligned, providing data support for the hike.

Easing Political Pressure: Prime Minister Sano Suga did not oppose the rate hike after taking office, and the political costs of continued inflation and a weak yen have led the government to tacitly accept the BOJ’s actions.

Market Expectation Management: Ueda Kazuo signaled clear policy intentions in advance. Once markets fully priced in the hike, it avoided sharp volatility.

A 0.75% interest rate is still considered low by most standards, but the BOJ has maintained near-zero or below-zero rates for many years. This rate hike marks the first since January 2025, after 11 months, indicating cautious steps away from ultra-loose monetary policy.

The Negative Real Interest Rate Trap: Nominal Rate Hike and Monetary Easing

Why did the yen fall instead of rise against the dollar? The answer lies in the concept of “real interest rates.” The BOJ explicitly states in its statement: “Following policy adjustments, real interest rates are expected to remain significantly negative, and an accommodative financial environment will continue to strongly support economic activity.”

Real interest rate = Nominal interest rate - Inflation rate. Japan’s current inflation is about 2-3%, with a nominal rate of 0.75%, so the real interest rate is approximately -1.25% to -2.25%. This negative real interest rate means that the actual purchasing power of deposits continues to decline, and the real cost of borrowing remains negative. From a monetary policy perspective, this is still accommodative rather than tightening.

Comparing with the US situation highlights this difference. The Fed has lowered rates to 3.5%-3.75%, with inflation around 2.7%, resulting in a real interest rate of about 0.8%-1.05%, which is positive. This means the dollar’s real return is higher than the yen’s, and capital naturally flows toward dollar assets rather than yen assets.

Nomura’s Japan interest rate strategy team notes that a simple rate hike alone is unlikely to be a catalyst for further yield increases. Market reactions show that this hike has been fully digested by investors, confirming the central bank’s judgment—that current rate adjustments are insufficient to change the easing stance and are more akin to “gradual normalization.” For the yen to truly strengthen, real interest rates need to turn positive, which would require nominal rates above 3% or inflation below 0.5%. Neither scenario is likely in the short term.

Ueda’s Press Conference and the Decisive Impact of Next Rate Hike Timing

Ueda Kazuo will hold a press conference at 3:30 PM local time (2:30 AM Beijing time) to further explain the considerations behind the decision and the future rate path. The impact of this press conference on the yen could far exceed that of the rate hike itself. Nomura’s global FX strategy team explicitly states that only if the BOJ hints that the next rate hike will occur earlier than the market’s expectation of April 2026 could it trigger market turbulence and cause the yen to strengthen.

The current market pricing scenario is: the BOJ raises rates again by 25 bps in April 2026 and then pauses to observe. If Ueda hints during the press conference that “rates may be raised as early as January or March,” it would exceed market expectations and cause the yen to surge. Conversely, if he emphasizes “more time is needed to observe data” or “the pace of hikes depends on economic performance,” the market will interpret this as dovish, and the yen will weaken further.

From an economic fundamentals perspective, this rate hike is supported by data. Recent economic indicators show that tariffs pushed by Trump have not caused substantial damage to Japan’s economy. Meanwhile, the main labor unions in Japan have set wage increase targets similar to last year—after last year’s negotiations brought the largest wage increases in decades, indicating wage momentum remains. This is also the first rate hike by Ueda since January this year, highlighting his commitment to continue normalizing rates amid the “inflation-wage-policy” positive cycle.

Since October, Japan’s domestic political environment briefly cast a shadow over monetary policy prospects. When Sano Suga, seen as a dovish figure, became Prime Minister, markets worried that the government might hinder the normalization of BOJ policies. However, analysis indicates that ongoing inflation pressures and the political costs of a weak yen have prevented the government from blocking the BOJ’s rate hike, and instead have left room for Ueda to continue normalizing policies.

For global financial markets and crypto investors, the BOJ’s policy path has systemic implications. If Japan continues to raise rates gradually while the US cuts rates, the Japan-US interest differential will narrow, potentially unwinding some arbitrage trades and exerting marginal pressure on risk assets. But if Japan maintains a “gradual” pace, markets will have ample time to adjust, and shocks will be manageable. Ueda’s statements during the press conference will reveal the specific trajectory, and markets are watching closely.