With an October 30 move ruled out by every economist surveyed, the yen’s direction is likely to hinge on the tone of the BOJ’s statement and outlook report. A declaration that underlying inflation has reached 2% would mark a historic shift and strengthen expectations of a December hike. That could support the yen and push Japanese government bond yields higher. Board voting is another swing factor: further dissent from Takaichi-appointed members would likely weigh on the yen, while a call for a hike by a hawkish member would have the opposite effect. Oil prices remain a key influence on Japan’s inflation outlook as a major energy importer. Any escalation in the Middle East that lifts crude would add to the case for steady quarterly hikes, while also pressuring Japan’s trade balance and the yen.
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Earlier:
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BOJ watchers have moved firmly toward a December hike, and the bigger question this month is whether Japan’s central bank finally declares victory on 2% inflation after 13 years of trying.
Summary:
More than 80% of Bank of Japan watchers now expect the central bank’s next interest rate increase to come in December, according to a Bloomberg survey, with none forecasting a move when its next meeting concludes on October 30.
Some 83% of economists expect the BOJ to raise borrowing costs from 1.25% at its meeting ending December 18, up sharply from 35% in last month’s survey, when January was the most popular pick. Two-thirds of respondents also expect the BOJ to hike every three months, up from 46%. That suggests economists see it maintaining its current pace after September’s increase, its second in three months and the fastest tightening since 1990. The median forecast for the peak rate in this cycle held at 1.75%.
Many economists said the main focus of this month’s meeting will be whether the BOJ concludes that underlying inflation has reached its 2% target, something it has not declared since adopting the goal in 2013. Economists at Morgan Stanley MUFG Securities expect the bank to signal that underlying inflation is around 2%, and to deliver a hawkish hold. Economists expect the quarterly outlook report released alongside the decision to leave inflation projections broadly unchanged, apart from a slight upgrade for next fiscal year.
September’s hike took the policy rate into the BOJ’s estimated neutral range of 1.1% to 2.5% for the first time, increasing market interest in how high rates will ultimately go.
Politics remains a factor. Prime Minister Sanae Takaichi is known as a supporter of monetary easing. However, after US Treasury Secretary Scott Bessent urged Japan to drop reflationary policies, Takaichi and her ministers said they are not pursuing reflation. About two-thirds of economists in the survey now think the government has softened its stance on BOJ hikes. Strategists at Mitsubishi UFJ Morgan Stanley Securities said the prime minister’s office probably does not welcome further increases, but is likely to tacitly accept them for now, largely because of relations with the US.
Board votes are also under scrutiny. September’s increase drew dissents from Toichiro Asada and Ayano Sato, both Takaichi appointees, which helped weaken the yen. Some economists see a chance that hawkish board member Hajime Takata will push for a back-to-back hike at this month’s meeting.
Bank of Japan Governor Ueda
This article was written by Eamonn Sheridan at investinglive.com.
Source: Investing Live - Central Bank
