BOJ to Pause Rate Hikes This Month as Bets on a December Increase Grow

BOJ to Hold Rate at 1.25%, Assess Impact of September Hike

The Bank of Japan (BOJ) is expected to keep its benchmark interest rate unchanged at its monetary policy meeting later this month. Having raised rates in September, the BOJ needs to wait and assess the effects of the move for the time being. However, underlying inflation has already reached the BOJ's target, fueling expectations that it could raise rates in December.

The Nikkei reported on October 23 that the BOJ plans to keep its short-term policy rate, the benchmark interest rate, at the current 1.25% at its monetary policy meeting on October 29-30. The newspaper said there were signs of caution within the BOJ about raising rates consecutively. "Unless the situation is extremely urgent, consecutive rate hikes are out of the question," a senior BOJ official told the Nikkei. Another official said, "This meeting is a chance to assess the impact of the September rate hike."

Bank of Japan Governor Kazuo Ueda speaks after the BOJ's monetary policy meeting ended on the 18th of last month. Tokyo, Japan=Reuters-Yonhap News.

The BOJ is likely to conclude that inflation, a prerequisite for raising rates, has effectively reached its 2% target. The Nikkei noted that the BOJ is likely to signal in its "Outlook for Economic Activity and Prices," an inflation outlook report to be published at this meeting, that inflation has already reached a level consistent with its target.

However, the Nikkei expects another rate hike around the end of the year. If the United States raises rates at year-end, the interest rate gap could widen and the yen could weaken further. This could increase pressure on the BOJ to raise rates again, analysts say. Markets expect the U.S. Federal Reserve (Fed) to hold rates at its Federal Open Market Committee (FOMC) meeting on October 27-28, then raise them at its December meeting.

A survey of economists covering the Japanese economy released by Bloomberg on October 22 also found that 83% of respondents expected a rate hike at the December meeting. That was up 48 percentage points from 35% in the previous month's survey. No respondents expected a rate hike at the meeting scheduled for October 29-30.

The Nikkei reported: "The key question is how much of a hint BOJ Governor Kazuo Ueda will offer about the next rate hike at his press conference after the meeting on October 30."

This content was produced with the assistance of AI translation services.