BOJ Set to Weigh Rate Hike While Seeing Little Urgency to Act

The Bank of Japan (BOJ) is expected to maintain its current interest rate of around 0.25% at its upcoming policy meeting on October 31, following a surprise 15 basis points (bps) rate lift-off in July. The central bank is widely anticipated to keep interest rates unchanged, given the recent underlying inflationary trends and political upheaval. However, the BOJ's updated projections for inflation and economic growth will play a pivotal role in the market's pricing of future rate increases. The BOJ must carefully assess domestic risks alongside global uncertainties, such as the US presidential election on November 5 and the broader economy, to ensure stability and predictability in the Japanese financial markets.

The recent political instability in Japan, marked by the Liberal Democratic Party (LDP) losing its parliamentary majority, introduces uncertainty into the economic landscape. This political upheaval may influence the BOJ's decision-making process, as it could exacerbate inflationary pressures and further depreciate the Japanese Yen (JPY). However, the BOJ is expected to maintain a cautious stance, assessing domestic risks alongside global uncertainties. The central bank is likely to keep interest rates unchanged at the upcoming meeting, signaling no rush to remove policy accommodation. This wait-and-see approach aligns with the BOJ's focus on underlying inflation trends and the need for a sustainable 2% inflation target.

The BOJ's updated projections for inflation and economic growth will play a pivotal role in its communication regarding future rate hikes. Tokyo's inflation data, a leading indicator of nationwide trends and a key factor the BOJ will scrutinize at its policy meeting, showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September's 2.1% growth. Meanwhile, the BOJ's closely watched broader price trend indicator, the "core-core" CPI – excluding both fresh food and energy costs – edged higher by 1.8% YoY in the same period, accelerating from an increase of 1.6% in September. This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BOJ to consider a rate hike at its December policy meeting. The hawkish expectations could find additional support from the uncertainty around the Japanese political situation, which could exacerbate the pain in the beleaguered local currency. The further decline in the Japanese Yen could also drive up imported inflation and short-term inflation expectations. Overall, the Japanese central bank is expected to remain in a wait-and-see mode, assessing domestic risks alongside the uncertainties linked to the United States (US) presidential election on November 5 and the economy.

Analysts at BBH preview the BOJ will keep its interest rate unchanged. "Recent comments from Ueda suggest there will be no policy change at this meeting, so the focus will be on the BOJ's policy guidance. We expect the BOJ to signal again that it's in no rush to remove policy accommodation, which would further weigh on JPY," they said. As for the updated macro forecasts, BBH analysts said they see downside risks.

The BOJ's decision to keep interest rates unchanged, following a surprise 15 basis points (bps) rate lift-off in July, reflects its cautious approach to managing monetary policy. The central bank is expected to maintain this stance at its October 31 meeting, given the recent underlying inflationary trends and political upheaval. The BOJ's updated projections for inflation and economic growth will play a pivotal role in the market's pricing of the BoJ's pace and timing of future rate increases. Tokyo's inflation data, a leading indicator of nationwide trends and a key factor the BOJ will scrutinize at its policy meeting, showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September's 2.1% growth. Meanwhile, the BOJ's closely watched broader price trend indicator, the "core-core" CPI – excluding both fresh food and energy costs – edged higher by 1.8% YoY in the same period, accelerating from an increase of 1.6% in September. This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BOJ to consider a rate hike at its December policy meeting. The hawkish expectations could find additional support from the uncertainty around the Japanese political situation, which could exacerbate the pain in the beleaguered local currency. The further decline in the Japanese Yen could also drive up imported inflation and short-term inflation expectations. Overall, the Japanese central bank is expected to remain in a wait-and-see mode, assessing domestic risks alongside the uncertainties linked to the United States (US) presidential election on November 5 and the economy.

The BOJ's decision to keep interest rates unchanged, following a surprise 15 basis points (bps) rate lift-off in July, reflects its cautious approach to managing monetary policy. The central bank is expected to maintain this stance at its October 31 meeting, given the recent underlying inflationary trends and political upheaval. The BOJ's updated projections for inflation and economic growth will play a pivotal role in the market's pricing of the BoJ's pace and timing of future rate increases. Tokyo's inflation data, a leading indicator of nationwide trends and a key factor the BOJ will scrutinize at its policy meeting, showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September's 2.1% growth. Meanwhile, the BOJ's closely watched broader price trend indicator, the "core-core" CPI – excluding both fresh food and energy costs – edged higher by 1.8% YoY in the same period, accelerating from an increase of 1.6% in September. This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BOJ to consider a rate hike at its December policy meeting. The hawkish expectations could find additional support from the uncertainty around the Japanese political situation, which could exacerbate the pain in the beleaguered local currency. The further decline in the Japanese Yen could also drive up imported inflation and short-term inflation expectations. Overall, the Japanese central bank is expected to remain in a wait-and-see mode, assessing domestic risks alongside the uncertainties linked to the United States (US) presidential election on November 5 and the economy.

The BOJ's decision to keep interest rates unchanged, following a surprise 15 basis points (bps) rate lift-off in July, reflects its cautious approach to managing monetary policy. The central bank is expected to maintain this stance at its October 31 meeting, given the recent underlying inflationary trends and political upheaval. The BOJ's updated projections for inflation and economic growth will play a pivotal role in the market's pricing of the BoJ's pace and timing of future rate increases. Tokyo's inflation data, a leading indicator of nationwide trends and a key factor the BOJ will scrutinize at its policy meeting, showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September's 2.1% growth. Meanwhile, the BOJ's closely watched broader price trend indicator, the "core-core" CPI – excluding both fresh food and energy costs – edged higher by 1.8% YoY in the same period, accelerating from an increase of 1.6% in September. This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BOJ to consider a rate hike at its December policy meeting. The hawkish expectations could find additional support from the uncertainty around the Japanese political situation, which could exacerbate the pain in the beleaguered local currency. The further decline in the Japanese Yen could also drive up imported inflation and short-term inflation expectations. Overall, the Japanese central bank is expected to remain in a wait-and-see mode, assessing domestic risks alongside the uncertainties linked to the United States (US) presidential election on November 5 and the economy.

The BOJ's decision to keep interest rates unchanged, following a surprise 15 basis points (bps) rate lift-off in July, reflects its cautious approach to managing monetary policy. The central bank is expected to maintain this stance at its October 31 meeting, given the recent underlying inflationary trends and political upheaval. The BOJ's updated projections for inflation and economic growth will play a pivotal role in the market's pricing of the BoJ's pace and timing of future rate increases. Tokyo's inflation data, a leading indicator of nationwide trends and a key factor the BOJ will scrutinize at its policy meeting, showed on October 25 that the headline Consumer Price Index (CPI) rose 1.8% year-over-year (YoY) in October, down from September's 2.1% growth. Meanwhile, the BOJ's closely watched broader price trend indicator, the "core-core" CPI – excluding both fresh food and energy costs – edged higher by 1.8% YoY in the same period, accelerating from an increase of 1.6% in September. This gauge suggests that the underlying price pressures remain on a gradual uptrend, compelling the BOJ to consider a rate hike at its December policy meeting. The hawkish expectations could find additional support from the uncertainty around the Japanese