The main focus during the session was the Bank of Japan policy decision. As expected, the BoJ raised its short-term policy rate by 25 basis points, from 0.5% to 0.75%, delivering exactly what markets had priced.

The Bank had previously lifted rates back in January, and today’s move, taking the policy rate to its highest level in three decades, neatly provides the other bookend for the year. Together, the January and December hikes frame 2025 as the year Japan decisively stepped away from its ultra-easy monetary past, albeit cautiously.

In the lead-up to the announcement, the yen softened modestly, though moves were contained. Immediately after the decision, the initial reaction was a brief, shallow bout of yen strength before the currency weakened again. USD/JPY pushed above 156.10, before pulling back toward 155.85 as liquidity thinned and attention shifted to guidance rather than the hike itself.

The key takeaways from the BoJ statement were familiar but important. Policymakers stressed that real interest rates remain significantly negative and that monetary conditions remain accommodative, despite the higher policy rate. The decision was approved by a unanimous vote, though the statement revealed differing views on inflation dynamics.

Board member Takata opposed the description of the inflation outlook, arguing that CPI, including underlying measures, has already broadly reached the price stability target. Separately, board member Tamura objected to the wording on underlying inflation, saying it is likely to be broadly consistent with the target from the middle of the projection period. Neither member formally dissented from the rate decision.

The Bank reiterated that it will continue to raise the policy rate if the economy and prices evolve in line with forecasts, signalling conditional openness to further tightening.

In rates markets, JGB yields remain elevated, with the 10-year yield touching its highest level since May 2006.

Elsewhere, major FX pairs were subdued, trading in largely rangebound conditions as the session drew to a close.

Asia-Pac
stocks took their lead from an improved Wall Street:

• Japan
  (Nikkei 225) +1.14%
• Hong
  Kong (Hang Seng) +0.65%
• Shanghai
  Composite +0.5%
• Australia
  (S&P/ASX 200) +0.5%

Next up, Bank of Japan Governor Ueda press conference at 0630 GMT / 0130 US Eastern time: