The Bank of Japan's monetary policy adjustments are accelerating, but the path to true normalization remains long.

In the third quarter of 2025, the BOJ clearly sped up its exit from quantitative easing. The total assets shrank significantly by 22.3 trillion yen quarter-on-quarter, falling from a peak by a total of 61.2 trillion yen, ultimately dropping to 695 trillion yen, the lowest level since 2022, roughly back to the scale of 2020. The purpose of balance sheet reduction is straightforward—strengthening the yen exchange rate while easing domestic inflation pressures.

A correction is needed regarding a circulating claim: the rumor that "the BOJ holds more than half of the shares of major Japanese banks" is not true. In fact, the BOJ had already liquidated its holdings of bank shares for financial stability as early as July 2025. Currently, it holds no related shares, and its historical shareholding ratio has never reached that level.

Regarding interest rate hikes, on December 19, the BOJ raised its policy rate to 0.75%, hitting a 30-year high. But honestly, this is just a small step from extreme easing toward marginal tightening, and there is still considerable room for the monetary policy to fully normalize.

As for the subsequent pace, there are different opinions in the market. The BOJ itself states that actual interest rates are still very low and have room to rise further, but the specific timing will depend on three key indicators—the performance of core CPI, the results of spring wage negotiations, and the resilience of economic recovery. The mainstream expectation is that the next rate hike may not occur until mid-2026, with a terminal rate target set at 1.25%. However, institutions like Nomura Securities are more conservative, believing that rate hikes might be paused directly in 2026, with the window for adjustments opening only in 2027.