BOJ to Hold Rates at 1.25% but Signal Inflation Target Met — SkimNews
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- Bank of Japan is expected to keep its policy rate at 1.25% after raising it last month to the highest level in 31 years, with all 16 economists in a CNBC survey anticipating no change at the October meeting
- Bank of Japan is widely expected to declare that its 'underlying inflation' target of 2% has been met, marking a key shift in its monetary policy stance despite ongoing fragility in the domestic bond market
- Japan's core inflation rose 2.1% year-on-year in September, the highest this year, driven by a weak yen and elevated energy costs, even as government subsidies temper consumer price pressures
- Japan's inflation-adjusted wages increased 1.5% year-on-year in August, marking the eighth consecutive month of gains and reinforcing expectations of wage-growth-driven inflation
- Finance Minister Satsuki Katayama stated Japan is 'on the cusp of shifting to a period of sustained inflation driven by rising wages,' acknowledging import costs also contribute to price increases
- Benchmark 10-year JGB yield is forecast to rise to 3%–3.1% by year-end from 2.809%, and the 30-year yield to reach 4%–4.1% from 3.829%, as analysts expect BOJ tightening to resume after a pause
- Thirteen of 16 survey respondents expect the BOJ’s terminal rate to reach 1.75%–2% by mid-2027, with January seen as the likely timing for the next hike due to the bank’s quarterly outlook review
Why it matters: The BOJ’s shift toward confirming sustained inflation and wage-driven price pressures marks a break from decades of deflationary policy, raising borrowing costs for the government and households; with yields projected to climb and a 1.75% terminal rate in sight, Japan’s debt servicing burden and corporate financing costs face structural upward pressure.
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