The Bank of Japan left its policy rate unchanged at its October meeting, while indicating that it viewed the sustainability of price trends as being around 2% and treating an increase in ETF sales as a surprise. Pricing for a December rate hike remained at approximately 80%, and dollar-yen is expected to trade in a range of ¥156–¥159.
The Bank of Japan left its policy rate unchanged at its October Monetary Policy Meeting. Based on its Outlook for Economic Activity and Prices, it indicated that underlying inflation was at a level broadly consistent with the 2% target. The median forecast for core CPI in fiscal 2027 was raised from 2.4% to 2.6%, while an estimate excluding factors such as subsidies also showed inflation reaching the 3% range.
The increase in ETF sales was reported by the market as one of the surprises, while the stock market reaction was subdued. The announcement of a policy to step up sales of the Bank of Japan’s ETF holdings was widely viewed as likely to create only limited downward pressure on the market in the short term.
Pricing for a December rate hike remained high at approximately 80%. Although the Governor said at a press conference that there were few new developments, it continued to affect expectations in the futures market. In currency markets, the yen temporarily strengthened before weakening again, and the overall market impact was assessed as limited.
Potential future drivers include the US midterm elections, developments in the Middle East and oil prices. In particular, movements in US dollar interest rates could change depending on the midterm election results, potentially affecting dollar-yen. The APEC Economic Leaders’ Meeting and trade balance trends were also cited as areas of interest.
The focus is on whether dollar-yen can break out of the ¥156–¥159 range seen over the past month. Depending on the direction of the US dollar, the pair could break above or below the range, while movements in other currency pairs such as euro-dollar may also provide a reference point.