The BOJ is widely expected to leave its policy rate unchanged at its October monetary policy meeting, while reports indicate that it is likely to raise its FY2027 inflation forecast slightly in its Outlook for Economic Activity and Prices. Views that higher crude oil prices will prolong pass-through pressures have also been reported.
The BOJ is widely expected to leave its policy rate unchanged at its October meeting, according to multiple people familiar with the matter. The Outlook for Economic Activity and Prices is expected to indicate that the FY2027 inflation forecast is likely to be raised slightly, while some also see price pass-through pressures lasting longer than expected following a renewed rise in crude oil prices.
The BOJ raised its policy rate to 1.25% in September, bringing it to a 31-year high. It is expected to defer an additional rate hike at this meeting and to indicate that underlying inflation has nearly reached around 2%, while maintaining its view that financial conditions remain accommodative. Some voices are calling for an additional rate hike as early as December.
In its July Outlook for Economic Activity and Prices, the BOJ projected core CPI to rise 2.4% year on year and core-core CPI to rise 2.6% in FY2027, but the assumption that crude oil prices would remain elevated has broken down. The new outlook is widely expected to include a slight upward revision to the FY2027 core CPI forecast, reflecting the impact of higher crude oil prices, while many believe the risk of secondary effects through rising wages is not substantial.
While many in the market expect the policy rate to be raised to 1.75% by next June, others believe there is little need to rush into consecutive rate hikes in October, given that companies’ inflation expectations in the September Tankan survey remain elevated but are accelerating only moderately. A weaker yen could push up inflation through higher import costs, and the BOJ is expected to make its decision after assessing market trends before and after the meeting.