Consensus for a Hold, with a Clear Signal of Further Tightening Ahead
The Bank of Japan is widely anticipated to leave its benchmark policy rate unchanged at 1.25% when its two-day deliberation wraps up on Friday, according to a CNBC poll of 16 economists and analysts. Every single respondent in the survey projected that the central bank would stand pat, a predictable outcome following its decision last month to push the rate to its highest point in 31 years.
That said, the mood around the meeting is decidedly hawkish. All 16 participants indicated they believe the BOJ will use the occasion to telegraph a further increase in either December or January of next year, as domestic price pressures and wage growth continue to build.
Homin Lee, senior macro strategist at Lombard Odier, noted that the macroeconomic backdrop lends support to additional policy tightening. "But there may not be sufficient consensus in the policy board for successive rate hikes given the fragility in the domestic bond market," he cautioned, pointing to the delicate balance the board must strike between combating inflation and preserving financial stability.
Sosuke Nakamura, an economist at Citi Research, offered a slightly more measured view, saying he does not see clear evidence that inflation is accelerating to a degree that would warrant back-to-back increases.
Inflation and Wage Data Reinforce the Case for Tightening
The data underpinning the BOJ's hawkish lean is unambiguous. Japan's core inflation rate, which strips out volatile fresh food prices, climbed to 2.1% year over year in September, marking the highest reading of the year. A persistently weak yen has amplified import costs, while elevated energy prices continue to feed through into consumer prices, even as government subsidies cushion the direct impact on households.
On the wage front, inflation-adjusted pay rose for the eighth consecutive month in August, up 1.5% from a year earlier, the latest government figures show. That streak points to a self-reinforcing cycle of wage-driven price increases.
Finance Minister Satsuki Katayama reportedly told lawmakers last week that Japan was "on the cusp of shifting to a period of sustained inflation driven by rising wages," while also acknowledging that higher import costs were contributing to the upward price pressure.
Reports from Reuters and The Japan Times indicate the BOJ is set to formally declare that its 2% underlying inflation target has been achieved at this week's meeting. Ryutaro Kimura, senior fixed income strategist at BNP Paribas Asset Management, said he is watching to see whether the central bank's monetary policy statement shifts its language from "underlying CPI inflation has been approaching 2 percent" to a more definitive acknowledgment that it "has reached 2 percent." Such a phrasing change would carry significant signaling weight for market participants.
Yen and Government Bond Yields in Focus
On the currency front, nine of the 16 respondents forecast the yen will trade in the 157-to-158 range against the U.S. dollar over the coming month. For the three-month horizon, opinions were more dispersed, with targets spanning from 150 to 160.
Masahiko Loo, senior fixed income strategist at State Street Investment Management, argued that "BOJ normalization, higher domestic yields and shifting institutional flows should gradually narrow the rate differential and pull capital back toward Japan." He tempered that view, however, by noting that "elevated U.S. yields should prevent a straight-line yen rally."
Last week saw the yen firm against the dollar and Japanese government bond yields dip on safe-haven buying triggered by a selloff in AI-related equities. That was a sharp reversal from earlier in the month, when Prime Minister Sanae Takaichi's expansionary spending proposals and a broader global bond selloff had weighed on both the currency and the JGB market.
Looking ahead, nine respondents expect the yield on the benchmark 10-year JGB to land between 3% and 3.1% by year-end, a meaningful rise from the current 2.809%. Seven respondents projected the 30-year JGB yield would climb to the 4% to 4.1% range from 3.829% as of Tuesday. Those expectations align with the broader view that the BOJ will resume its tightening cycle after the anticipated October pause.
Takuji Aida, chief Japan economist at Credit Agricole, placed the next move in January, coinciding with the BOJ's quarterly outlook report, which provides a comprehensive assessment of economic activity and price trends.
Terminal Rate Seen Near Neutral by Mid-2027
Thirteen of the 16 survey participants expect the BOJ's terminal rate — the upper bound of the current tightening cycle — to settle somewhere between 1.75% and 2% by around mid-2027.
Masato Koike, senior economist at SOMPO Institute Plus, observed that macroeconomic data suggests the policy rate is already approaching the neutral level of 2%, which mirrors the BOJ's own inflation target. "But given the state of the Japanese economy and the need to avoid excessive downward pressure on growth, I expect the BOJ to stop raising rates at around 1.75%," he said, underscoring the tension between price stability and supporting economic expansion.
The CNBC survey was fielded between October 14 and 26 and included responses from 16 economists and analysts covering Japanese monetary policy, fixed income, and macro strategy.