This report summarizes the outlook for when underlying inflation will reach 2%, the background to the Bank of Japan's decision to leave rates unchanged, and the market outlook for the next 12 months in light of developments in the United States.
The Bank of Japan may indicate in its Outlook Report that underlying inflation has reached 2%. The outlook suggests that it will leave its policy rate unchanged at 1.5% at its December meeting and raise it to 2.25% by the end of 2027. Meanwhile, the prevailing view in the United States is that the Federal Reserve will keep its policy rate at 4.0% through the end of the year. The forecast calls for the Nikkei Stock Average to remain around ¥72,000 and USD/JPY around ¥155 over the next 12 months.
The key points of focus at the October meeting are the FOMC's decision, the voting behavior of Board Members Takata (高田) and Tamura (田村), the views on prices held by Board Members Asada (浅田) and Sato (佐藤), and Governor Ueda's (植田) press conference. The central expectation is that the Bank of Japan will leave rates unchanged, which could reinforce expectations of a rate hike at a subsequent meeting.
Developments in the 2027 spring wage negotiations may affect wage growth, and the increase in scheduled cash earnings in the Monthly Labour Survey is expected to accelerate from just below 3%. Against this backdrop, there may be periods in which continued rate hikes are anticipated, but the direction of monetary policy is expected to depend on the stance of individual Board Members regarding the underlying inflation outlook.
This material has been prepared for informational purposes only and is not intended as an offer or solicitation to invest. The information herein is based on data available at the time of preparation. It is noted that the outlook may be changed without prior notice.