Western Securities(SZ:002673) Sou Hu Cai Jing·2025-12-03 10:29Core Viewpoint - The Bank of Japan (BOJ) is likely to resume its interest rate hike cycle after a 10-month pause, with a strong indication from Governor Kazuo Ueda that a rate increase may occur at the upcoming meeting on December 18-19, 2023, without causing significant global market turmoil [1][4]. Group 1: Economic Factors Supporting Rate Hike - External factors such as the significant reduction in uncertainty regarding U.S. tariff policies and the role of artificial intelligence in driving global economic recovery contribute to a more optimistic outlook for the BOJ [2]. - Internally, the political stability brought by Prime Minister Fumio Kishida's administration has reduced previous uncertainties, despite a contraction in Japan's GDP growth rate in Q3, which analysts attribute to temporary export adjustments rather than systemic risks [2][7]. Group 2: Market Reactions - Following Ueda's comments, Japan's 10-year government bond yield surged to 1.875%, the highest level since June 2008, while the Nikkei 225 index fell by 1.9% and the yen strengthened against the dollar to around 155.4 [1][4]. - The likelihood of a December rate hike has increased from approximately 50% to 70-80%, effectively bringing forward expectations for a potential rate increase that was initially anticipated for January 2024 [2]. Group 3: Implications for Global Markets - The divergence in monetary policy between Japan and the U.S. is expected to increase market volatility, particularly as Japan's anticipated rate hikes could lead to a rise in yen financing costs and a potential unwinding of carry trades [5][6]. - Japan remains the largest net creditor globally and the largest foreign holder of U.S. debt, with a total of $1.189 trillion in U.S. Treasury securities as of September, which may influence asset allocation strategies as Japanese bond yields rise [5]. Group 4: Future Rate Hike Expectations - Analysts predict that the BOJ's rate hikes will be moderate, with expectations of 1-2 hikes per year at 25 basis points each, due to pressures from Japan's substantial public debt and the government's fiscal policies [7]. - The upcoming rate increase is not expected to trigger a major global financial crisis, as the current market conditions are driven more by improving corporate earnings rather than valuation increases, suggesting continued resilience in global equity markets [7].