Japan’s inflation surprise is adding pressure on the Bank of Japan to raise interest rates at its December 17–18 meeting. Producer prices rose 7.1% in October, above economists’ 6.5% forecast, while import prices climbed 24.8% in yen terms, according to BeInCrypto. Japan has raised its policy rate twice this year, in June and September, bringing it to 1.25%; another increase would mark three hikes in a calendar year for the first time since 1989. In an October Reuters poll, 54 of 78 economists forecast a hike, though BOJ officials remain divided as consumer spending stays weak. The BOJ previously raised its old official discount rate three times in 1989, later kept borrowing costs near zero and adopted negative rates before ending them in March 2024.

Higher Japanese rates could weaken the yen carry trade, in which investors borrow yen to buy overseas assets. A sudden yen rebound could force selling in U.S. stocks and riskier assets such as Bitcoin, as seen during the August 2024 market sell-off. Japan held about $1.07 trillion in U.S. Treasuries in August, and investors shifting funds home could add upward pressure to U.S. yields. The Nikkei is down 11% in a month, while the yen was near 160 per dollar on Thursday. A December hike alone would not ensure a sell-off; the greater risk would be faster-than-expected hikes in 2027 that trigger a sharp yen rebound.