Japan's Interest Rate Hike May Tighten Global Financial Conditions

KuCoinFlash

Release Time:12/20/2025 12:01:14

On December 19 (UTC+8), the Bank of Japan raised its policy rate by 25 basis points to 0.75%. A China Merchants Bank report warns the move could tighten global financial conditions through yen liquidity reversal and pressure on Japanese bond markets. Open interest analysis shows around $9 trillion in yen-based carry positions may contract as U.S.-Japan rate differentials narrow. Risk-to-reward ratio for yen-linked assets is deteriorating. Japanese bond risks may rise as the government approves a 2.8% GDP supplementary budget. Long-term fiscal plans include boosting defense spending to 3% of GDP and eliminating the consumption tax, which may trigger sharper yield moves.

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