Since exiting negative interest rates in March 2024, the Bank of Japan has raised rates five times, bringing the rate to 1% in June 2026 (the highest since 1995). This time, it remains unchanged but emphasizes the risk of exceeding the target, continuing the path from ultra-loose to gradual normalization, having previously revised inflation risks upward due to oil prices and yen depreciation.

On the capital front, the central bank is compressing the degree of easing by continuously raising the policy interest rate, pushing the wage-price spiral towards a sustainable 2%, while reducing reliance on government bond purchases; the motivation is to prevent inflation from deviating and being forced to rise sharply, strategically reallocating resources from asset bubbles and export subsidies to rebuilding domestic demand pricing power.

In comparison to the Federal Reserve's rapid shift from zero interest rates in 2022-2023 to curb excess: Japan is currently in the mid-stage of normalization, similar to the European Central Bank's cautious rate hikes after exiting QE, shifting the industry position from defending against deflation to actively managing upward risks.

Essentially, this is a change in regulation and a shift in pricing power: after wage transmission and rising import costs elevate underlying inflation, the central bank is forced to lock in the upward channel early, with the mechanism being the failure of expectation anchoring under a fixed supply monetary framework, forcing the policy interest rate to become the new pricing anchor.

ABAB News · Cognitive Law

The central bank's warning of exceeding the target is the true beginning of rate hikes.
The old easing will not suddenly disappear, but will be gradually priced in.
Inflation exceeding the target risk = wage transmission × exchange rate depreciation