At its October meeting, the Bank of Japan kept the policy rate at 1.25% and suggested that a rate hike in December was possible. While its Outlook Report assessed that the underlying inflation rate had reached 2%, it did not acknowledge that the price stability target had been achieved.
The Bank of Japan held its monetary policy meeting on 29–30 October and kept the policy rate at 1.25%. The accompanying Outlook Report followed the previous indication that a December rate hike was increasingly likely.
The Outlook Report assessed that the underlying inflation rate had reached 2%, but Governor Ueda said that the price stability target had still not been achieved. It has been noted that the wording avoided the term “reached,” instead using expressions such as “has become” and “is now.”
In the market, the probability of a December rate hike in the OIS market has risen to around 80%. The next meeting is in December, and the assumption of one rate hike every 3 months remains unchanged.
Policy management next year is expected to proceed on a data-dependent basis, bringing rates closer to the neutral rate while assessing whether there are risks of inflation overshooting. The author expects rates to rise to around 1.75% in the first half of next year.