The BOJ has stepped up efforts toward its 2% price stability target, and the market has priced in an 80% probability of a rate hike in December. The BOJ's rate-hike decision, including at the December meeting, will remain in focus, while the longer-term direction of interest rates is the key issue. As the 2% target moves toward becoming firmly established, the direction of monetary policy is expected to come under renewed scrutiny.
The BOJ has indicated a policy of bringing underlying inflation closer to 2%, making achievement of the price stability target a focus of economic policy. While the effects of the yen's depreciation and higher stock prices resulting from the previous phase of unprecedented monetary easing continue, rising prices are now becoming evident in actual economic activity. Core indicators as of September showed strong growth and are informing policy decisions.
The market has priced in an additional rate hike at the next December meeting, with the OIS market indicating a probability of 80%. The BOJ has implemented 6 rate hikes to date, and if the next 0.25% hike is implemented, the policy rate could rise to around 1.5%.
Governor Ueda has expressed the view that it will be important to “stabilize [inflation] at around the 2% level,” while concerns have also been raised that higher corporate funding costs could affect the momentum of wage increases. Policymakers will need to contain inflationary pressure while maintaining a virtuous cycle in the economy.
An impact on floating-rate mortgages and other variable-rate loans is expected, and repayment plans may need to be reviewed if rate hikes continue. Achievement of the price stability target is seen as signaling the end of the previous era of monetary easing, while risks cited include the situation in the Middle East, expanding AI demand and further yen depreciation.