BOJ expected to hold at 1.25%, signal December hike

The Bank of Japan is expected to keep its policy rate at 1.25% on Friday, October 30, when its two-day meeting ends. Policymakers are also expected to stress that they want to stop underlying inflation from rising above the 2% target, which would leave room for a rate hike as soon as December, Reuters reported. Analysts told Reuters that this guidance would back up the bank's message from last month that it has entered a more hawkish phase and is open to raising rates every few months.reuters.com

The central bank raised rates in June and again in September. That is a faster pace than the roughly twice-a-year increases in 2024 and 2025, driven by high energy costs and higher import prices from a weak yen, according to Reuters. The board approved the September move, from 1% to 1.25%, on a 7-2 vote, investingLive reported.investinglive.com+1

December comes into focus

A Bloomberg survey cited by investingLive found that more than 80% of economists expect the next hike in December, and none expect a move in October. Most analysts in a Reuters poll expect the rate to rise to 1.5% in December, with more hikes next year. Their forecasts for where rates eventually stop cluster between 1.75% and 2%, Reuters said. The bank's next meeting is December 17-18, investingLive noted.investinglive.com+2

"By declaring that its policy phase has changed, the BOJ is essentially telling markets it will hike rates once a quarter," Kazuo Momma, a former BOJ executive, told Reuters. He expects hikes in December and March. ANZ also forecasts quarter-point increases in December and March. It cautioned, however, that an uneven growth backdrop "does not warrant aggressive tightening," Investing.com reported.reuters.com+1

Outlook report and Ueda's briefing

People familiar with the matter told Reuters that the quarterly outlook report is likely to raise next fiscal year's price forecast slightly. It is also expected to signal that underlying inflation has roughly reached 2%. The bank has never made that declaration since adopting the goal in 2013, investingLive noted. Governor Kazuo Ueda said in Bangkok on October 16 that, with underlying inflation near 2%, the bank can no longer tolerate further increases.reuters.com+1

The outlook report is due at 03:00 GMT. Ueda's press conference is scheduled for 06:30 GMT, according to investingLive. Analysts expect any hint on the timing of the next hike to drive moves in the yen and Japanese government bonds.investinglive.com

Data released hours before the decision showed Tokyo core inflation at 2.6% in October, down from 2.7% in September but still above the target, Reuters reported. Former BOJ official Nobuyasu Atago said that declaring the 2% goal effectively reached "would be a show of resolve the BOJ won't tolerate any further overshoot in inflation," Reuters reported.rmb.reuters.com+1