The Bank of Japan is expected to keep its policy rate unchanged at 1.25% at the conclusion of its two-day meeting on Friday, according to a CNBC survey conducted October 14-26 among 16 economists and analysts [1]. All 16 survey respondents forecast the BOJ to stand pat, given that the central bank raised rates last month to their highest level in 31 years [1]. However, all respondents also expect the BOJ to set the stage for a rate hike in either December or January of next year, as domestic inflation and wages continue to rise [1].
Macroeconomic conditions support additional policy tightening by the BOJ. Japan's core inflation, excluding fresh foods, rose 2.1% year-over-year in September, reaching its highest level for the year as a weak yen raises import costs and elevated energy costs feed through to consumer prices [1]. Additionally, Japan's inflation-adjusted wages rose for the eighth consecutive month in August, climbing 1.5% year-over-year, signaling potential wage-growth-driven inflation [1]. Finance Minister Satsuki Katayama reportedly told lawmakers that Japan was "on the cusp of shifting to a period of sustained inflation driven by rising wages," while acknowledging that higher import costs were also contributing to price pressures [1].
Despite the macroeconomic support for tightening, some analysts express caution about consecutive rate hikes. Homin Lee, senior macro strategist at Lombard Odier, noted that "there may not be sufficient consensus in the policy board for successive rate hikes given the fragility in the domestic bond market" [1]. Sosuke Nakamura, an economist at Citi Research, stated he sees "no clear signs of inflation accelerating to a degree that would justify consecutive rate hikes" [1]. Regarding currency movements, nine survey respondents expect the yen to trade between 157 and 158 against the U.S. dollar over the next month, with three-month targets ranging more broadly from 150 to 160 [1].
CONCLUSION
The BOJ is poised to maintain its current 1.25% policy rate this week but faces mounting pressure to raise rates again by December or January as inflation and wage growth persist. While macroeconomic data supports further tightening, policy board consensus concerns and bond market fragility may constrain the pace of consecutive rate hikes, creating a measured normalization path for Japanese monetary policy.