The Bank of Japan is expected to hold its policy rate at 1.25 percent this week, a month after raising it to a 31-year high in September, and to use the quarterly Outlook Report to say the thing markets have been waiting to hear in writing: that underlying inflation, excluding temporary factors, has effectively reached the 2 percent target. Nikkei reported the plan on October 23, citing the bank’s intention to assess the impact of September’s hike first. A Bank of Japan official put the sequencing plainly: unless there is a special emergency, there will be no consecutive rate hikes.
Governor Kazuo Ueda prepared the wording in Bangkok on October 16, saying economic indicators had moved broadly as expected since September, that underlying inflation is generally close to 2 percent, and that any further increase beyond it is unacceptable. The data since then support the formulation. September core consumer prices, excluding fresh food, rose 2.1 percent year on year, accelerating from 1.7 percent in August and printing above the target for the first time in nine months, while the index excluding fresh food and energy, the bank’s preferred gauge of demand-driven inflation, rose 2.4 percent from 1.9 percent. Goods inflation rose to 2.8 percent and services inflation to 1.5 percent, evidence that price pressure is broadening even if the wage-driven services leg still lags.
Economists have moved the next step earlier, not later. In Bloomberg’s poll, no respondent expects a hike on October 30, 83 percent point to the meeting ending December 18, up from 35 percent favouring December a month earlier, 67 percent now expect increases roughly every quarter, and the median terminal rate held at 1.75 percent. Reports also indicate the bank may revise up its inflation forecast for fiscal 2027 on higher oil prices.
The front end is already there. Japan’s three-month treasury bill auction on October 23 cleared at a weighted average yield of 1.2680 percent, just above the 1.25 percent policy rate, as recorded in yesterday’s edition. Tokyo CPI for October lands hours before Friday’s decision and will be read as the last check on the December pricing. A hold with ‘2 percent reached’ in the Outlook Report is a hawkish hold: the pause is in the rate, not in the direction.