The Bank of Japan is about to reach a critical moment. This Friday, the Policy Board led by Governor Ueda Haruhiko will raise the benchmark interest rate to 0.75%, the highest level in 30 years. This is not just a numerical change but also a sign of Japan's long-term commitment to move from ultra-loose monetary policy to normalization.

Speaking of which, the 0.75% interest rate level is not high on a global scale—but for Japan, it is a milestone. Decades of near-zero interest rate policies have accustomed the market to this "liquidity" environment. Now, as the adjustment proceeds gradually, market psychology must also change.

Why raise interest rates? The answer is straightforward: inflationary pressures persist. Japan's inflation rate has exceeded the 2% target for nearly four consecutive years, with rising food prices being the main driver. Under these circumstances, if the central bank continues to maintain low interest rates, it will be unable to effectively control prices.

However, the Bank is also sending a signal: although a second rate hike will occur within the year, the magnitude of each increase depends on the economic response to policy adjustments. In other words, this is not a mechanical, predetermined rate hike but a flexible adjustment based on economic conditions. This is crucial because uncertainties in U.S. tariff policies and the stance of the new government could influence Japan's economic performance.

It is worth noting that the Japanese government and the central bank currently share the same stance on this issue. Finance Minister Shunichi Suzuki recently stated that there is no disagreement between the government and the Bank regarding the economic outlook, which effectively serves as an administrative "green light" for the Bank's rate hike plans.

From a market perspective, the central bank's logic is clear: as long as inflation and wage growth form a virtuous cycle, there is a basis for further rate hikes. The latest temporary survey shows that, due to increasing labor shortages, most regional branches expect companies to significantly raise wages again next year. This wage increase expectation gives the Bank confidence to continue normalizing policies.

Overall, the Bank of Japan is cautiously stepping out of the "low interest rate trap." This process may take some time, but the direction is already set. For those paying attention to the global economy and exchange rate markets, the subsequent performance of the yen warrants close observation.