Unless there is any market shock when US President elect Trump takes office, it is expected that the Bank of Japan will raise interest rates on Friday, which will increase short-term borrowing costs to levels not seen since the 2008 global financial crisis.

Policy tightening will highlight the Bank of Japan's determination to steadily raise interest rates from the current 0.25% to nearly 1%. Analysts believe that this interest rate level will neither cool down nor overheat the Japanese economy.

Sources say that during the two-day meeting ending on Friday, the Bank of Japan may raise its short-term policy rate to 0.5% unless Trump's inauguration speech and executive order disrupt financial markets.

In a quarterly outlook report, it is expected that the central bank's board of directors will also raise its price expectations, as more and more people believe that the expansion of wage increases will put Japan on a sustainable path to achieving the central bank's 2% inflation target level.

If the Bank of Japan raises interest rates, it will be the first time since July last year. The interest rate hike in July last year, coupled with weak US employment data, shocked traders and triggered a global market crash in early August.

In order to prevent such a situation from happening again, Bank of Japan Governor Kazuo Ueda and his deputy issued a clear signal last week that there is a possibility of interest rate hikes, preparing the market carefully. With the market expecting a possibility of about 80% interest rate hikes on Friday, this statement has caused a rebound in the yen.

There were also signs of taking action in the near future last month. Although the Bank of Japan postponed a rate hike at its meeting on December 18-19, hawkish governor Naoki Tamura proposed a rate hike. According to the meeting minutes, some of his colleagues also believe that the conditions for an upcoming interest rate hike are already in place.

This week's policy tightening is almost a certainty, and market attention is turning to the post planting briefing to find clues on the timing and pace of future interest rate hikes.

Due to inflation consistently exceeding the Bank of Japan's 2% target level over the past three years and the weak yen resulting in high import costs, Ueda may emphasize the determination of policy makers to continue raising interest rates.