Japan – Monetary Policy Normalization Meets Structural Strength

Monetary Policy: The Bank of Japan raised its key interest rate in September to 1.25%—the highest level in about 30 years. As a result, the normalization of Japanese monetary policy is proceeding much faster than expected at the beginning of the year. Further interest rate hikes remain possible if inflation becomes firmly established above the 2% target.
Inflation & Wages: The sustained return of inflation and rising wages remains fundamentally positive for Japan. The 2026 wage agreements once again show strong increases. At the same time, energy prices and the weak yen are increasing price pressures, which is why the BoJ must now pay closer attention to inflation risks.
Yen: It is noteworthy that the yen remains weak despite the interest rate hike and most recently stood at around 157 yen per U.S. dollar. This supports export-oriented companies but makes energy and raw material imports more expensive.
Economy: The Japanese economy remains robust. Corporate investment, in particular, is showing solid growth. In August, exports rose by 19.3% year-over-year, driven in particular by semiconductors and technology products.
Structural Investment Case: Corporate reforms, higher returns on capital, share buybacks, and rising dividends remain key long-term drivers. Added to this are Japan’s strong positions in semiconductors, robotics, automation, and precision technology.
Risks: Higher oil prices hit Japan particularly hard as a major energy importer. Other risks include overly rapid monetary tightening, a global slowdown in growth, and greater volatility in the yen.

Conclusion: The investment case for Japan remains intact, but it is evolving. Extremely loose monetary policy is no longer the key driver. The focus is increasingly on corporate reforms, rising returns on capital, investment, and Japan’s technological strength. Japan thus remains an attractive strategic diversification component in a global equity portfolio.

Expected GDP 2026: 0.60%
Expected inflation 2026: 2.10%
Japanese key interest rate: 0.64%

Mimi Haas, Lic. rer.pol. HSG, M.A. in Banking and Finance HSG, Partner

_{Sources: OECD, Bank of Japan, and IMF
As of: September 28, 2026}