A hold is largely the base case, so the yen and JGB yields are likely to take their cue from the language rather than the decision. A formal declaration that underlying inflation has reached 2%, a Takata dissent and any shift by Ueda toward “next meeting” phrasing would together read as hawkish, supporting the yen and pushing short-end yields higher as markets price a December move. Higher crude prices are a key upside risk, with oil already reigniting upstream cost pressure and feeding the BOJ’s concern about inflation overshooting. A guarded Ueda who stresses a broad review of financial conditions could see December pricing trimmed and the yen soften.
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Also this week:
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The BOJ is expected to stand pat on rates while quietly moving the goalposts, from getting inflation up to 2% to stopping it from running beyond it, which keeps December firmly in play.
Summary:
- Daiwa expects the BOJ to keep rates unchanged at its October meeting, with October surveys showing softer household and business inflation expectations
- The board is likely to conclude that underlying inflation has reached 2%, shifting policy from lifting inflation toward stabilising it around that level
- Board member Hajime Takata may again propose a rate hike, while Naoki Tamura is seen backing a hold after September’s increase
- Daiwa expects the Outlook Report to raise the FY26 growth forecast to 0.8% from 0.6% and FY27 core CPI to 2.5% from 2.4%, and to trim FY26 core-core CPI to 2.4%
- Higher crude prices have reignited upstream inflation pressure, and the BOJ’s policy rate already sits above the lower end of its estimated neutral range of around 1% to 2.5%
- Ueda’s press conference will be watched for December hints, particularly any shift from “every meeting” language toward the next meeting
The Bank of Japan is expected to leave interest rates unchanged at its October meeting, but the decision could still mark an important shift in its policy thinking, according to a preview from Daiwa Securities. The broker expects the board to conclude that underlying inflation has reached 2%, a step that would move the central bank from a phase of lifting inflation toward its target to one focused on keeping it stable around that level.
Daiwa cited media reports that economic conditions and prices have continued to track the BOJ’s outlook since September, and that policymakers do not see upside inflation risks as strong enough to justify back-to-back rate increases. Surveys published in October also showed inflation expectations among households and businesses easing. Even so, concern about an inflation overshoot remains high. Cost pass-through is broadening at the consumer level, and rising crude oil prices have revived upstream price pressures, with some within the BOJ expecting pass-through to accelerate into next year.
Governor Kazuo Ueda signalled the change in tone earlier this month, saying that with underlying inflation now close to 2%, the bank can no longer tolerate further increases and is aiming to stabilise it. Daiwa expects the Outlook Report to replace its description of inflation as approaching 2% with wording that it is broadly consistent with the target, and argues that if the report continues to flag upside inflation risks, that would provide grounds for considering an early hike.
The broker expects board member Hajime Takata to dissent and propose a hike, as he did in July, citing strong global demand, including for AI-related products. Naoki Tamura, who has spoken of raising rates every few months toward a neutral level of around 2%, is seen supporting a hold so soon after September’s increase.
On forecasts, Daiwa expects the board to lift its FY26 growth projection to 0.8% from 0.6% and FY27 core inflation to 2.5% from 2.4% on the back of higher oil prices, while trimming FY26 core-core inflation slightly to 2.4%. The report is unlikely to factor in a planned cut to the consumption tax on food, which Daiwa estimates could lower core inflation by roughly 1.5 percentage points in FY27.
Ueda’s post-meeting press conference will be pivotal. Daiwa will watch whether he keeps describing rate decisions as being made at each meeting or shifts toward language pointing to the next meeting, which markets could read as a stronger signal of a December hike. With the policy rate already above the lower end of the BOJ’s estimated neutral range, his assessment of financial conditions will also shape expectations for how quickly further tightening follows.
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Bank of Japan Governor Ueda
This article was written by Eamonn Sheridan at investinglive.com.