Japan’s Persistent 3% Core Inflation Drives BOJ Rate Hike to 30-Year High

Japan’s core CPI (excluding fresh food) remained at 3% in November 2025, unchanged from October and in line with economists’ estimates [1]. This marks the 44th consecutive month that core inflation has exceeded the Bank of Japan’s (BOJ) 2% target, highlighting sustained price pressures that challenged the central bank’s long-held ultra-loose monetary policy framework [1]. The CPI data was a key catalyst for the BOJ’s decision to raise its policy rate to 0.75% on December 19, 2025— a level unseen in three decades [0].

For the Nikkei 225, the rate hike announcement initially triggered a negative reaction but the index closed 0.24% higher on December 19, suggesting the move was largely priced into the market [0]. Trading volume spiked to 163.30 million shares on the day, significantly higher than the 116.20 million and 113.20 million shares traded on December 18 and 17, respectively, indicating increased investor activity and repositioning [0].

1. The 44-month streak of above-target inflation forced the BOJ to abandon its decades-long ultra-loose monetary policy, marking a historic shift in Japan’s monetary stance [0].
2. The Nikkei 225’s resilience (closing higher despite the rate hike) reflects market anticipation of the policy move, as prolonged inflation had already signaled potential tightening [0].
3. The spike in trading volume underscores heightened market engagement with the BOJ’s action, as investors adjusted positions in response to the new policy environment [0].

• Sovereign Debt Strain
  : Japan’s high debt levels may face increased servicing costs due to higher interest rates, posing fiscal risks [0].
• Corporate Borrowing Costs
  : Rising rates could reduce corporate profitability and dampen investment plans, especially for highly leveraged firms [0].
• Yen Volatility
  : Global investor reactions to the BOJ’s tightening cycle may lead to increased volatility in the Japanese yen [0].

• Capital Inflows
  : Higher Japanese interest rates could attract global capital seeking better yields, supporting market liquidity [0].
• Confidence Signal
  : The BOJ’s shift may signal confidence in Japan’s economic recovery, potentially boosting long-term market sentiment [0].

• Japan’s core CPI (excluding fresh food) remained at 3% in November 2025, above the BOJ’s 2% target for 44 months [1].
• The BOJ raised its policy rate to 0.75% on December 19, 2025, a 30-year high [0].
• The Nikkei 225 closed 0.24% higher on December 19 with trading volume of 163.30 million shares [0].
• Affected instruments include Japanese stocks (Nikkei 225), Japanese government bonds (JGBs), and the yen [0].