Bank of Japan Governor Kazuo Ueda has made it clear again recently—the rate hikes will continue. Mitsubishi UFJ’s top executive, Kanetsugu Mike, even offered a timetable at that financial summit in Hong Kong: Japan’s interest rates could climb to 1% between 2025 and 2026.

According to Mike, inflation in Japan is indeed picking up, so the central bank has no choice but to act. He predicts there will be another rate hike before the end of the year, followed by two more rounds within the following year, pushing rates up to the so-called "neutral level" of 1%. Sounds pretty aggressive? But they’ve done the math—Japanese companies and households don’t actually have high debt levels, so they can withstand this wave of rate increases.

What’s even more interesting is how Japanese companies have changed in recent years. Corporate governance reforms have taken off, and now everyone’s focused on capital returns, with dividends and buybacks clearly on the rise. This has directly improved the fundamentals of the Japanese stock market, attracting more capital inflows.

But here’s the issue—central banks around the world are now completely out of sync. Back in the 1990s, everyone was moving in step, but now? Japan is scrambling to raise rates, while the US and Europe are cutting them. What kind of chain reaction could this monetary policy mismatch trigger in the markets? Honestly, that’s the most puzzling part.