The BOJ raised its policy rate to around 1.25% at its September meeting, but the terminal rate is expected to remain unchanged from the previous view. Market focus has shifted to the explanation for additional rate hikes and the outlook for the next meeting.
At its 18 September monetary policy meeting, the BOJ raised the guidance level for the uncollateralized overnight call rate to around 1.25%. This was the shortest interval between rate hikes since the shift away from the policy of unprecedented monetary easing, at three months after the previous decision at the June meeting.
The focus this time was not the rate-hike decision itself, but how the BOJ would explain it. Depending on the explanation, additional rate hikes and consecutive hikes at the September and October meetings had been considered possible. We identified 4 points of focus: the degree to which inflation risks were emphasized, changes in the policy stance, the approach to assessing cumulative effects, and references to the next meeting. Regardless of the position taken, the BOJ indicated that it would avoid an aggressive hawkish shift based on these points and maintain its accommodative stance.
Although the BOJ referred to upside risks to prices, it did not indicate that those risks had intensified further. It indicated that it would continue adjusting the degree of accommodation while proceeding with rate hikes. It avoided any explicit assumption of consecutive rate hikes at the next meeting or an increase in the size of the hike, maintaining its basic stance of assessing the economic and price outlook and associated risks.
Against the backdrop of renewed deterioration in the Middle East and US rate hikes, the author changed the post-September-meeting main scenario for additional rate hikes from the previous December 2026/March 2027 view. The view that the BOJ's terminal rate will remain unchanged from the previous level is also suggested.