Bank of Japan Updates Market Data as Government Proposes Record Spending
Tokyo, Sunday, 28 December 2025.
The central bank released critical liquidity data on December 26, coinciding with Japan’s proposal for a record 122.3 trillion yen budget that assumes a significant jump in interest rates.
Fiscal Expansion Meets Higher Rate Assumptions
On December 26, 2025, Japan’s cabinet approved a record-breaking draft initial budget for fiscal 2026, totaling 122.31 trillion yen ($785 billion) [8]. This proposal represents a notable increase of approximately 6.172 percent from the initial 115.20 trillion yen budget set for fiscal 2025 [8]. A critical shift in this fiscal plan is the Ministry of Finance’s adjustment of the assumed interest rate for debt servicing, which has been raised to 3.0% for fiscal 2026, up from 2.0% the previous year [8]. This adjustment signals a government acknowledgement of rising borrowing costs as the country moves away from its prolonged era of ultra-loose monetary policy. To bridge revenue shortfalls, the government plans to issue 29.58 trillion yen in new bonds [8].
Operational Data and Monetary Policy
Coinciding with the government’s fiscal announcement, the Bank of Japan (BOJ) released a suite of operational data on December 26. This included provisional results for the uncollateralized overnight call rate [6] and projections for current account balances [5]. These disclosures follow the central bank’s decision to hike interest rates on December 18, 2025 [4]. Governor Kazuo Ueda reinforced this hawkish stance on December 25, stating that core inflation is approaching the 2% target and the bank remains ready to raise rates again [8]. While the BOJ discontinued new lending of ETFs based on trade dates in September 2025 [1], its daily market operations remain a focal point for investors gauging liquidity conditions in this tightening cycle.
Inflation Trends and Currency Volatility
Despite the central bank’s shift toward normalization, recent data indicates cooling price pressures in the capital. Tokyo’s annual inflation rate fell to 2.0% in December, down from 2.7% in November, while core-core inflation eased to 2.6% [8]. following the release of this data, the yen weakened against the dollar, trading at 156.54 on December 26 [4]. The currency’s depreciation persists even after Finance Minister Satsuki Katayama issued a stern warning on December 23, asserting that Tokyo maintains a “free hand” to intervene against excessive currency moves [4]. The BOJ also updated its foreign exchange rate lists on December 26 [3], providing further transparency as market participants navigate the divergence between Japan’s fiscal expansion and the central bank’s monetary tightening.