BOJ’s Hike to 1.25%, a 31-Year High, Raises Global Carry-Trade Reversal Risk as China-ASEAN Trade Acts as Regional Stabilizer
The Bank of Japan’s September rate hike to 1.25%, its highest level since 1995, put the global economic impact of tighter Japanese monetary policy in focus.
ASIA,ECONOMY
Global N Press
11/10/20261 min read
The global spillovers of the Bank of Japan’s hawkish pivot dominated Asia’s economic agenda on 4 November 2026. The BOJ raised its policy rate from 1.0% to 1.25% in September, the highest since 1995, accelerating its tightening pace with only three months between hikes. Inflation pressure from wage-price momentum and Middle East-driven energy costs, alongside a widening U.S.-Japan rate gap, drove the move; inaction would have intensified yen depreciation. The deeper risk lies in capital flows: Japan was the world’s largest creditor for 33 consecutive years, with net external assets of ¥561.8 trillion at end-2025, and the BIS estimates that of a historical peak of over $1.2 trillion in yen-funded carry trades, $300–400 billion could repatriate as normalization proceeds.
That reversal could reprice global risk assets, particularly in emerging markets reliant on yen funding. Governor Kazuo Ueda has signaled that energy pass-through and wage data strengthen expectations of a December hike to 1.5%. Within Asia, trade data offer a partial counterweight: China’s customs administration reported on 10 November that China-ASEAN trade reached ¥7.68 trillion in January–October, up 24.2% year-on-year, far outpacing growth with the EU (8.5%) and the U.S. (6.3%), keeping ASEAN China’s largest trading partner. The BOJ’s normalization removes the world’s last source of ultra-cheap funding, amplifying carry-trade reversal risk, while China-ASEAN trade resilience under RCEP and the upgraded free trade area cushions — but does not fully offset — the liquidity shock to Asian risk assets.
