Interest Rates Are at the Center of Everything

It is the central bank that determines interest rates

In the United States, the Federal Reserve (FRB) determines the policy rate, while in Japan, the Bank of Japan does so. The policy rate is the benchmark for interest rates when banks lend to and borrow from each other. When this moves, interest rates on mortgages and deposits follow suit.

The job of a central bank is to stabilize prices. Both Japan and the U.S. aim for a 2% annual increase in prices.

Current interest rates (as of early November 2026)

• U.S.: 3.75–4.00%. Raised rates by 0.25% in September 2026 and held steady in October

• Japan: Around 1.25%. Raised rates by 0.25% in September 2026. This is the highest level in about 31 years

The U.S. had been cutting rates since 2024, but inflation did not subside easily, leading to a rate hike in September for the first time in three years and two months.

The gap between Japan and the U.S. is still about 2.5%. This “interest rate differential” moves the dollar-yen exchange rate.

Why have Japanese interest rates started to rise?

For a long time, interest rates in Japan were almost zero. From 2016, they even implemented negative interest rates. This was because prices were not rising easily, and it was necessary to keep warming up the economy.

The trend changed around 2022. Energy prices rose, and the weak yen made imports more expensive. A state where prices exceeded 2% continued, and wages also began to rise.

Determining that “a 2% price increase is expected to continue,” the Bank of Japan ended negative interest rates in March 2024. Since then, they have raised rates at a pace of roughly once every six months.

In 2026, that pace accelerated. They raised rates to 1.0% in June and to 1.25% three months later in September. This was due to caution that high oil prices and the weak yen would push up prices more than expected.

What tends to happen when interest rates rise?

According to textbooks, when rates are raised, things tend to move in the following directions.

• Stocks: Tend to fall. Companies face higher interest payments on debt. For investors, if they can earn interest from deposits or bonds, the reason to hold stocks weakens

• Currency: The country’s currency tends to be bought. Money moves toward higher interest rates

• Bitcoin: Said to be prone to falling. Since it generates neither interest nor dividends, the reason to hold it weakens when interest rates are high

It is said that when interest rates are cut, the market tends to move in the following directions.

• Stocks: Tend to rise. Companies pay less interest on debt. Since interest on deposits and bonds decreases, money tends to flow into stocks.

• Currency: The country’s currency tends to be sold off. Money moves to other currencies with higher interest rates.

• Bitcoin: It is said to tend to rise. The disadvantage of not earning interest becomes smaller.

What is important is that the market moves based on the view that “a rate hike is likely” rather than the rate hike itself. Just like the “difference from expectations” mentioned previously, if a rate hike occurs as expected, the market may not move much on the day of the announcement.

Economic indicators have an effect through interest rates.

Once you understand this, there is only one way to interpret indicators.

• Prices are stronger than expected → A rate hike is likely → Stocks tend to fall, and the currency tends to rise.

• Employment is stronger than expected → A rate cut is delayed → Stocks tend to fall, and the currency tends to rise.

• Both are weaker than expected → A rate cut is likely → Stocks tend to rise, and the currency tends to fall.

From the next session, we will look at indicators such as prices and employment one by one. In every session, we will start by asking, “How will this figure affect interest rates?”

Summary

• The central bank determines interest rates. They raise or lower them by looking at prices.

• The U.S. rate is 3.75–4.00%, and Japan’s is around 1.25% (as of early November 2026).

• Japanese interest rates began to rise because prices and wages started to increase.

• A rate hike tends to be a headwind for stocks and Bitcoin, and a tailwind for that country’s currency.