The Bank of Japan is likely to leave policy unchanged at this week's policy meeting, while the wording of its Outlook for Economic Activity and Prices could affect its decision on a rate hike next year. The focus will be on whether it acknowledges that underlying inflation has reached 2%.
At its monetary policy meeting scheduled for the 29th and 30th this week, the Bank of Japan is highly likely to leave its policy rate unchanged, as expected. Markets see a low probability of a rate hike in October and expect the next hike to come in December.
The focus will be on the wording in the Outlook for Economic Activity and Prices regarding the outlook for prices and monetary policy. If the BOJ retains wording similar to that used at the September MPM, market expectations are growing that the possibility of a December rate hike will increase.
There have also been indications that if the BOJ acknowledges that underlying inflation has reached 2%, its policy stance could become more hawkish. This would put the pace of rate hikes from next year onward and the scope for a flexible response at the center of debate.
For monetary policy from next year onward, the BOJ is expected to avoid setting the pace of rate hikes in advance in light of the neutral interest rate and instead make data-dependent decisions. Such a message could signal to markets that consecutive rate hikes remain possible depending on price trends.