Did Ueda Kazuo really mean business this time? The market's answer is: there is a 70% probability that the interest rate hike button will be pressed at the meeting on December 19.

But don't expect him to make a bold move. Looking back at the historical actions of the Bank of Japan, every time they take action, it's a gradual 25 basis points. This time moving from 0.5% to 0.75% completely aligns with their "boiling the frog" approach. Moreover, with the unpredictable tariff policies from the US, the Bank of Japan needs to leave themselves an escape route in case the situation changes suddenly.

If it really rises to 0.75%, the next step will be a long observation period. They have to keep an eye on three things: whether wage growth can hold up, whether inflation will honestly move towards 2%, and whether U.S. tariffs will smash this lifeline of exports. If the data looks good, they might even push it up to 1%; if the signs are not right, then they will hit the brakes, and even the possibility of reversing course to restart easing cannot be ruled out.

What does raising interest rates to 1% mean? The interest rate differential between Japan and the U.S. may narrow to around 4%, which could ease the pressure on the yen's depreciation, but the return of capital may impact the bond market—this is a pit that needs to be cautiously guarded against.

In simple terms, this interest rate hike is the Bank of Japan testing how to navigate the "post-easing era": merely raising interest rates won't cure the root of inflation; it needs to be paired with labor market reforms and industrial upgrades. The international status of the yen must be maintained, but capital outflows also cannot spiral out of control, which makes this balance difficult to achieve. The trickiest part is that the government is fervently pursuing fiscal expansion, while the central bank must maintain its independence to stabilize prices and not be hijacked by short-term political achievements.

Ueda's current situation is one of "three-way tug-of-war": internally, he has to balance between controlling inflation and stabilizing growth; externally, he needs to respond to the divergence in Federal Reserve policies and the weakness of the yen; and upward, he has to cooperate with the new government's fiscal plan. His chosen strategy of "phased interest rate hikes" not only signals a shift but also leaves room for future adjustments. It's smart, but also quite risky.