What to know about the possible impact of Japan's rate hike

The Bank of Japan raised its key policy rate to a 30-year high on Friday in a widely anticipated move that could rattle world markets.

The two-day BOJ policy meeting wrapped up with the 0.25% hike in its benchmark short-term rate. That took the policy rate to 0.75%, its highest level since September 1995.

In a statement, the central bank said the decision was unanimous and that it expected to raise rates further if there are no major changes in the outlook for the economy.

The 0.75% rate is still low by most standards, but the BOJ has kept that rate near or below zero for years, trying to pull the economy out of a deflationary funk. Since the pandemic, most other central banks, like the U.S. Federal Reserve, have raised rates to counter spiking inflation and then begun cutting them to help their slowing economies recover momentum.

Japan’s own economy contracted at a 2.3% annual rate in the last quarter, but improved business sentiment and price pressures have led the BOJ to relent and raise rates. Here are some things to know about its decision.

Since Japan's economic bubble burst in the early 1990s, the central bank has kept borrowing costs low to encourage more spending by businesses and consumers.

Lower interest rates have also helped the central bank manage the country's massive national debt, which amounts to nearly triple the size of the economy.

As Japan’s population has aged and begun declining, its economy has slowed and that led to deflation, or falling prices due to weak demand. Even with cheap credit, investment has lagged, stunting economic growth.

In early 2013, the central bank launched what was dubbed a “big bazooka” of monetary easing, cutting interest rates and purchasing government bonds and other securities to help channel more money into the economy. When the COVID-19 pandemic struck, the benchmark interest rate was at minus 0.1%. The BOJ only began raising it in 2024, the first hike in 17 years, after inflation stabilized above its target of about 2%.

The Japanese yen has weakened against the U.S. dollar and many other major currencies. That has raised the cost, in yen terms, of imported food, fuel and other items needed to keep the world's fourth largest economy running.

The strong appetite for investing in dollar-denominated shares of companies linked to the artificial intelligence boom has also pulled money out of the yen and into dollars.

So inflation has risen faster than wages, squeezing household budgets and raising costs for businesses.

Higher interest rates are expected to raise the value of the yen against the dollar as investments flow into Japan seeking higher yen-denominated yields. Friday's move would signal the central bank's intention of continuing to “normalize” its monetary policy with further rate hikes next year.

“The BOJ’s stance towards rate hikes reflects the fact that inflation is becoming entrenched," Kei Fujimoto, a senior economist at SuMi Trust, said in a commentary. “If drivers such as a further depreciation of the yen accelerate inflation going forward, it is possible that the pace of rate hikes will also increase accordingly.”

The dollar is worth about 156 Japanese yen, nearly twice its level in 2012 and near its highest level this year.

Even small changes in interest rates can have a big impact on markets. A rate hike in Japan would undermine an investment strategy known as the “carry trade.” That involves investors borrowing cheaply in yen and then using that money to invest in higher paying assets elsewhere.

Any such major shift is likely to reverberate across world markets. Carry trades are lucrative when stocks and other investments are climbing, but losses can snowball when many traders face pressure to sell stocks or other assets all at once.

A rate hike also is expected to crimp demand for other assets, including cryptocurrencies. Reports last week that the BOJ would go ahead and raise rates caused the price of bitcoin, for example, to drop below $86,000. The original cryptocurrency had bolted to record highs near $125,000 in early October.

Judging the timing and scale of changes to interest rates and other monetary policies are the biggest challenge for central banks, given the time it takes for such moves to ripple throughout the real economy and financial markets.

Like the Federal Reserve, Japan's central bank struggles to balance the need to boost business activity and create jobs with the imperative of containing inflation.

The BOJ held off on raising rates earlier given uncertainties over how U.S. President Donald Trump's tariffs might hit automakers and other exporters. A deal setting U.S. duties on imports from Japan at 15%, down from the earlier plan for a 25% rate, has helped ease those concerns.

BOJ Gov. Kazuo Ueda has indicated he believes wages will continue to rise in Japan as companies compete for a shrinking pool of workers, helping to support growth.

Market watchers will be watching closely to see what Ueda says Friday about the outlook for future rate increases.

The Bank of Japan (BOJ) Gov. Kazuo Ueda arrives at the headquarters of BOJ in Tokyo, Friday, Dec. 19, 2025. (Kyodo News via AP)

The Bank of Japan (BOJ) Gov. Kazuo Ueda arrives at the headquarters of BOJ in Tokyo, Friday, Dec. 19, 2025. (Kyodo News via AP)

A general view of a container port seen from a helicopter in Tokyo, on Oct. 29, 2025. (AP Photo/Mark Schiefelbein)

FILE - A Japanese flag flutters at the Bank of Japan headquarters in Tokyo on July 29, 2022. (AP Photo/Shuji Kajiyama, File)

MILWAUKEE (AP) — A jury found a Wisconsin judge accused of helping a Mexican immigrant dodge federal authorities guilty of obstruction Thursday, marking a victory for President Donald Trump as he continues his sweeping immigration crackdown across the country.

Federal prosecutors charged Milwaukee County Circuit Judge Hannah Dugan with obstruction, a felony, and concealing an individual to prevent arrest, a misdemeanor, in April. The jury acquitted her on the concealment count, but she still faces up to five years in prison on the obstruction count.

The jury returned the verdicts after deliberating for six hours. Dugan faces up to five years in prison when she's sentenced, but no date had been set as of late Thursday evening.

The case inflamed tensions over Trump’s immigration crackdown, with his administration branding Dugan an activist judge and Democrats countering that the administration was trying to make an example of Dugan to blunt judicial opposition to the operation.

Dugan and her attorneys left the courtroom, ducked into a side conference room and closed the door without speaking to reporters. Steve Biskupic, her lead attorney, later told reporters that he was disappointed with the ruling and didn't understand how the jury could have reached a split verdict since the elements of both charges were virtually the same.

U.S. Attorney Brad Schimel denied the case was political and urged people to accept the verdict peacefully. He said courthouse arrests are safer because people are screened for weapons and it isn’t unfair for law enforcement to arrest wanted people in courthouses.

“Some have sought to make this about a larger political battle,” Schimel said. “While this case is serious for all involved, it is ultimately about a single day, a single bad day, in a public courthouse. The defendant is certainly not evil. Nor is she a martyr for some greater cause.”

U.S. Deputy Attorney General Todd Blanche praised the verdict on X, saying nobody is above the law, even judges.

According to a court filings that include an FBI affidavit and a federal grand jury indictment, immigration authorities traveled to the Milwaukee County courthouse on April 18 after learning 31-year-old Eduardo Flores-Ruiz had reentered the country illegally and was scheduled to appear before Dugan for a hearing in a state battery case.

Dugan learned that agents were in the corridor outside her courtroom waiting for Flores-Ruiz. She left the courtroom to confront them, falsely telling them their administrative warrant for Flores-Ruiz wasn’t sufficient grounds to arrest him and directing them to go to the chief judge’s office.

While the agents were gone, she addressed Flores-Ruiz’s case off the record, told his attorney that he could attend his next hearing via Zoom and led Flores-Ruiz and the attorney out a private jury door. Agents spotted Flores-Ruiz in the corridor, followed him outside and arrested him after a foot chase. The U.S. Department of Homeland Security announced in November he had been deported.

Prosecutors worked during Dugan’s trial to show that she directed agents to the chief judge’s office to create an opening for Flores-Ruiz to escape.

An FBI agent who led the investigation testified that after agents left the corridor, she immediately moved Flores-Ruiz’s case to the top of her docket, told him that he could appear for his next hearing via Zoom and led him out the private door.

Prosecutors also played audio recordings from her courtroom in which she can be heard telling her court reporter that she’d take “the heat” for leading Flores-Ruiz out the back.

Her attorneys countered that she was trying to follow courthouse protocols that called for court employees to report any immigration agents to their supervisors and she didn’t intentionally try to obstruct the arrest team.

This courtroom sketch depicts Maura Gingerich at Milwaukee County Circuit Judge Hannah Dugan's trial in court, Thursday, Dec. 18, 2025 in Milwaukee, Wis. (Adela Tesnow via AP, Pool)

This courtroom sketch depicts Judge Katie Kegel at Milwaukee County Circuit Judge Hannah Dugan's trial in court, Thursday, Dec. 18, 2025 in Milwaukee, Wis. (Adela Tesnow via AP, Pool)

This courtroom sketch depicts Judge Laura Gramling Perez at Milwaukee County Circuit Judge Hannah Dugan's trial in court, Thursday, Dec. 18, 2025 in Milwaukee, Wis. (Adela Tesnow via AP, Pool)

This courtroom sketch depicts Milwaukee County Circuit Judge Hannah Dugan in court, Tuesday, Dec. 16, 2025 in Milwaukee, Wis. (Adela Tesnow via AP)