Japan’s central bank hiked its policy rate to 1% on June 16, the highest it’s been since September 1995. That’s not the headline, though. The headline is that most economists watching the Bank of Japan think another increase is coming before 2026 wraps up.

A Reuters poll found that more than three-quarters of surveyed economists, 53 out of 67, expect the rate to climb to 1.25% by year-end. For a country that spent the better part of two decades in negative-rate territory, that’s a remarkable trajectory.

From negative rates to a 30-year high

The June decision moved the short-term policy rate from 0.75% to 1%, backed by a 7-1 vote among BOJ officials. The previous hike to 0.75% came in December 2025, part of a methodical normalization strategy that has been unfolding since the central bank finally abandoned its ultra-loose framework.

The 94% consensus among economists in the Reuters poll ahead of the June meeting tells you this wasn’t a surprise. Markets had priced it in. The real question everyone is asking is: how much further does this go?

Why the BOJ keeps tightening

BOJ officials cited energy-driven inflation risks as a key factor behind the decision. Geopolitical tensions, particularly related to the Iran conflict, have kept energy prices elevated.

Deputy Governor Shinichi Uchida flagged the risk of inflation overshooting the BOJ’s 2% target. Wage growth has also been a factor in the broader normalization push, with Japanese companies granting larger pay increases.

The next scheduled policy meeting is July 30-31. Markets will be watching closely for any signals about the pace and timing of additional moves.

What this means for markets and crypto

Japan’s low interest rates have been a cornerstone of the yen carry trade for years. The basic mechanics: investors borrow cheaply in yen, convert to higher-yielding currencies, and pocket the difference.

As Japanese rates rise, the yen strengthens. A stronger yen makes carry trades less profitable and, at some point, actively painful. When carry trades unwind, the effects ripple across global markets. Investors sell risk assets to cover their positions, and the resulting cascade can hit everything from equities to crypto.

In August 2024, a relatively modest BOJ rate adjustment triggered a sharp selloff in global equities and sent shockwaves through digital asset markets.

If the BOJ does push rates to 1.25% by year-end, as most economists expect, the cumulative tightening could meaningfully shift forex dynamics. The BOJ has been deliberate so far, telegraphing its moves well in advance. That 94% consensus ahead of the June hike suggests communication has been effective.