The impression that circumstances surrounding the BOJ have changed since the September meeting

Jiji Press reported on 6 October that the BOJ had begun considering a judgment that the underlying rate of inflation had reached around 2%. The Outlook Report is expected to describe this assessment at the monetary policy meeting scheduled for 29–30 October.

The BOJ’s policy stance is viewed as having shifted from a phase of “raising” the underlying rate of inflation to 2% toward preventing it from exceeding 2%. The background includes higher crude oil prices and progress in companies passing higher costs through to prices. The corporate goods price index remained elevated, rising 2.8% month on month in April and 7.6% year on year in August. The BOJ Tankan’s one-year-ahead selling price outlook also rose sharply.

Against the backdrop of changing relations between the government and the BOJ, as well as changes in the external environment, the article suggests that a rate hike could be decided at the December meeting. In addition to Finance Minister Katayama (片山) expressing concern about yen depreciation in relation to the foreign exchange market on 25 September, private-sector members indicated in the minutes of the 30 September Council on Economic and Fiscal Policy meeting that reflationary policy would end after deflation had been overcome. The article states that these developments point to signs of a change in the stance of the government and the BOJ.

As the market focuses on the pace of BOJ rate hikes, the possibility of deferring a hike at the October meeting has also been raised, and there is a view that rate hikes could resume before year-end depending on conditions. The author expects the appointments of BOJ Policy Board members in July 2027 to favor candidates ranging from neutral to hawkish, and states that if a successor from the reflationary camp emerges, long-term interest rates could rise and the yen could weaken.