BOJ to raise rates to 1.25% this month, reach 1.75% faster than expected - reuters.com

The Bank of Japan is expected to raise its policy rate to 1.25% this month, with a faster path to 1.75% than previously anticipated, according to Reuters. For years, Japan stood apart as the last major economy holding borrowing costs near zero, so each step higher carries outsized symbolic weight for global markets.

The key transmission channel is the yen. Higher Japanese yields can narrow the interest-rate gap with the United States and Europe, which has historically supported the currency. A firmer yen can, in turn, soften imported inflation in Japan, but it also pressures exporters' earnings and complicates the carry trade, in which investors borrow cheaply in yen to fund higher-yielding assets elsewhere.

What to watch: the BOJ's language around the pace of further moves, upcoming wage and inflation data, and how Japanese government bond yields respond. Because the yen is a global funding currency, shifts in BOJ policy can ripple through currency, bond, and equity markets well beyond Japan.