According to a recent CNBC survey, all 16 economists expect the Bank of Japan (BOJ) to keep the policy rate unchanged at 1.25% following its two-day meeting. This comes after the BOJ raised rates last month to their highest level in 31 years. Analysts predict that the BOJ will prepare for a rate hike in December or January, driven by ongoing domestic inflation and wage increases.
Homin Lee, a senior macro strategist at Lombard Odier, noted that macroeconomic conditions support further tightening, although there may be a lack of consensus within the policy board due to the fragile state of the domestic bond market. Citi Research economist Sosuke Nakamura expressed skepticism about the necessity for consecutive rate hikes, citing no clear signs of accelerating inflation.
Japan's core inflation reached 2.1% in September, influenced by a weak yen and rising energy costs, while inflation-adjusted wages increased by 1.5% in August. Finance Minister Satsuki Katayama indicated that Japan is nearing a period of sustained inflation linked to wage growth. The BOJ is expected to declare that its inflation target of 2% has been met.
Market expectations suggest the yen will trade between 157 and 158 against the dollar in the coming month, with analysts forecasting an increase in Japanese government bond yields as the BOJ resumes tightening after a pause. The survey indicates a terminal rate of 1.75% to 2% by mid-2027, reflecting the BOJ's cautious approach to avoid excessive pressure on economic growth