Bank of Japan to hold rates, signal further hikes
TLT•The Bank of Japan is set to keep its policy rate at 1.25% on Friday while signaling scope for further hikes, potentially as soon as December. The bank is likely to slightly raise its inflation forecast, as Tokyo core inflation exceeded its 2% target in October.
1. Rate decision expected
The Bank of Japan is set to maintain its policy rate at 1.25%, taking more time to assess the effects of past rate hikes on lending conditions. The bank is expected to stress its focus on preventing underlying inflation from overshooting its 2% target, a stance that could leave room for a hike as soon as December.
2. Inflation outlook
In its quarterly report, the BOJ is likely to slightly raise its price forecast for the next fiscal year and signal that underlying inflation has roughly reached its 2% target. Wage gains are becoming embedded and inflation expectations are hovering around 2%, while Tokyo core inflation well exceeded the target in October.
3. Further hikes anticipated
Most analysts polled by Reuters expect the BOJ to raise its policy rate to 1.5% in December, with further increases next year and a terminal rate of 1.75% to 2%. Rising energy costs and import prices linked to a weak yen are adding to inflationary pressures; higher prices could weigh on household consumption.
