Bank of Japan set to raise rates as yen weakens—ripple effects expected across Asian capital markets

On November 26, 2025, the Bank of Japan (BOJ) signalled it may lift interest rates as early as December amid a weakening yen and persistent inflationary pressures on food and services in Japan. Several BOJ board members—including Asahi Noguchi—cautioned that real interest rates remaining too low could fuel inflation, advocating for a gradual but certain tightening.

Markets widely anticipate a hike in short-term rates, potentially triggering a shift in capital flows: investors may pull funds out of Asian emerging markets and redeploy them into yen-denominated assets. Such a move could spark volatility across Asian equity and currency markets, with knock-on effects for countries reliant on Japanese capital or export demand—underscoring how national monetary policy can have region-wide, even global, financial implications.