Nagoya, Japan, December 1, 2025 – Bank of Japan (BOJ) Governor Kazuo Ueda signaled on Monday that the central bank will thoroughly evaluate the possibility of an interest-rate increase at its upcoming policy meeting, stoking market expectations of a rate hike this year.

Speaking to business leaders in Nagoya, central Japan, Ueda said the BOJ will pay special attention to the outlook for wage growth before making any decision. "Sticky inflation backs the case for higher rates, but as living costs rise, policymakers want to see commensurate growth in wages," he noted.

The BOJ is actively collecting data from firms regarding pay increase plans ahead of its final policy-setting meeting of the year, scheduled for December 18-19. At that meeting, the central bank “will consider the pros and cons of raising the policy interest rate and make decisions as appropriate,” Ueda said.

Markets reacted swiftly to Ueda’s comments, with the yen recovering to around 155.50 per dollar after recent weakness near 157.90, while the 10-year Japanese government bond yield rose to 1.850%, its highest level since June 2008.

Following the speech, Capital Economics revised its rate outlook, now expecting the BOJ to lift the policy rate to 0.75% in December, and projecting two additional rate hikes in 2026.

Ueda emphasized that a gradual increase in interest rates would not hinder Japan’s economic growth but rather adjust the economy’s pace toward sustainable growth and price stability. "Gradually adjusting interest rates will ultimately lead to the success of the efforts undertaken by the government and the bank thus far," he said.

While market participants now lean toward a December hike, economists remain divided due to Prime Minister Sanae Takaichi’s preference for expansive fiscal policies, uncertainties over U.S. tariffs, and the need for inflation expectations to be firmly anchored.