While the BoJ is widely expected to leave policy unchanged at its October Policy Board meeting, the focus will be on whether it determines that underlying inflation has reached 2%.
The BoJ is widely expected to leave its policy rate unchanged at this week’s October Monetary Policy Meeting, as forecast, and market pricing indicates that the likelihood of an October rate hike is low.
The key focus this time is that the likelihood of a December rate hike would increase if the Outlook Report uses the same wording on “upside risks to prices” and the “future conduct of monetary policy” as the statement issued at the September MPM.
The significance of the BoJ determining that underlying inflation has reached 2% is considerable, suggesting that future policy operations could tilt in a hawkish direction.
Monetary policy operations from next year onward are likely to leave room for flexible rate hikes. With a view to a phase in which the policy rate approaches the neutral rate, the direction appears to be one of flexibly determining the pace of rate hikes based on the data.