Bank of Japan Hikes Rates to Highest Since 1995

The Bank of Japan raised its benchmark interest rate to its highest level since 1995, its first hike since December, as the yen languishes near historic lows. This marks a durable shift in Japan's ultra-loose monetary policy regime that has persisted for decades.

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A sustained BOJ rate hiking cycle structurally reverses one of the most important macro anchors of the past two decades: zero or negative Japanese rates that funded global carry trades and suppressed domestic bond yields. Japanese financial institutions such as banks and insurers benefit from improved net interest margins after years of compression. The yen carry trade — borrowing cheap yen to invest in higher-yielding assets — faces ongoing unwinding pressure, creating structural headwinds for risk assets funded by this trade. Japanese government bond yields rise, increasing the cost of Japan's massive sovereign debt burden. Global asset managers with leveraged yen-funded positions in US equities, emerging markets, and real estate face forced deleveraging over a multi-year horizon.