The Bank of Japan meets on Thursday and Friday with the rate decision close to settled and the wording carrying the event. The bank raised its policy rate to 1.25 percent in September, a 31 year high, on a 7 to 2 vote, and no forecaster in the previews expects a second consecutive move: a senior official told Nikkei that, absent a special emergency, there will be no back to back hikes, and Governor Kazuo Ueda said in Bangkok on October 16 that indicators since September have moved broadly as expected, with no new developments warranting a change in outlook.
The step forward is expected in the quarterly Outlook Report. Previews from MUFG and others expect the report to effectively declare that underlying inflation, the measure the bank watches stripped of temporary fluctuations, has reached a level consistent with its 2 percent target, something it has never stated since adopting the goal in 2013. Ueda has prepared the ground, saying underlying inflation is generally close to 2 percent and that any further rise beyond it is unacceptable. Reaching the target does not itself trigger a hike, but it changes the burden of proof for waiting.
The path after Friday is where forecasters divide. A Reuters poll found 54 of 78 economists expecting the rate to reach 1.50 percent this quarter, about 80 percent of them naming the December 17 to 18 meeting, with a median terminal rate of 1.75 percent and 51 percent seeing 2.00 percent or more, against the bank’s estimated neutral range of 1.1 to 2.5 percent. Standard Chartered expects a clearly hawkish hold this week with December live but January 2027 as its base case for the next hike, noting the incentive to keep normalising to support the yen if the Fed stays restrictive.
Two risks frame the yen, which stood at 157.84 to the dollar in this site’s tables, up 0.2 percent on the day. The first is the vote: MUFG flags that the two members who opposed September’s hike could dissent against a hold in favour of a cut, a dovish signal that could outweigh hawkish language and trigger yen selling. The second is Washington: a surprise Fed hike today, sending the dollar sharply higher, is the kind of emergency that could put a back to back BoJ move back on the table. Tokyo CPI, due Friday morning before the decision, will shape the tone either way. Yesterday’s services producer price data, covered on this site, showed the headline at 3.7 percent with the domestic measure flat at 2.9 percent, freight doing the lifting.