The Bank of Japan is expected to raise its policy rate by 25 basis points to 1.25% today, its highest level since 1993. Markets are focused less on the hike itself, which is close to fully priced, than on Governor Kazuo Ueda's guidance on the pace of further tightening and the yen's reaction.
The Bank of Japan wraps up a two-day policy meeting today, and a quarter-point rate hike to 1.25% is being treated by markets as close to a formality. The move would take the policy rate to its highest level since 1993 and mark the central bank's sixth increase since it exited ultra-loose policy in 2024. The BoJ sets no fixed release time for its statement, but traders are watching a window of roughly 0230 to 0330 GMT, with Governor Ueda's press conference following at a scheduled 0630 GMT.
Focus shifts to pace, not the hike itself
With the rate hike largely priced in, the bigger question is what Ueda signals about the path ahead. Reuters reporting, citing people familiar with the central bank's thinking, says the board has no preset view on a terminal rate and remains split between hawks who see underlying inflation already near the 2% target and more cautious members such as Toichiro Asada, who dissented against June's increase. A larger, 50 basis point move has been played down, a view echoed by board member Kazuyuki Masu, who has said inflation is nearing target without a sharp overshoot.
Goldman Sachs calls today's decision effectively settled and argues there is a growing case for a faster pace, with room for another move as soon as December. The bank points to elevated energy prices, strong AI-related demand, a weaker yen and accommodative fiscal policy under Prime Minister Takaichi as forces that could push inflation higher than currently expected. Reuters-polled economists see the policy rate reaching 1.5% by the end of March next year and 1.75% by the second quarter of 2027, so today's move is being treated as one step in a longer tightening path rather than the end of it.
Yen strength sets up a "sell the fact" risk
USD/JPY has fallen from around 160 to near 153 over recent weeks, currently straddling 156.00, as hike odds built. That leaves room for a "buy the rumour, sell the fact" reaction if Ueda's tone stays cautious and data dependent.
CPI print unlikely to shift the outcome
Japan also releases its national consumer price index for August today, though the data carries limited weight with the BoJ decision landing the same day. Economists polled by Reuters expect national core CPI to hold at 1.8% year on year for August, level with July and still short of the BoJ's 2% target, extending a run of below-target readings. Producer prices, however, accelerated to their fastest pace in roughly three and a half years in August, a sign that upstream cost pressure continues to build even as headline inflation stays contained.
Sources: InvestingLive, InvestingLive
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