BoJ preview: Hawkish hold
At a Glance
The desk anticipates a hawkish hold from the Bank of Japan (BoJ) at its upcoming meeting, following September's hike to 1.25%. The central bank's growth and inflation outlook will be pivotal, particularly if CPI forecasts for FY27 and FY28 exceed the 2% threshold, which could pave the way for further rate increases in 2027. Per the full note from ing-think, market pricing currently assigns an 80% chance of a 25bp hike in December, suggesting heightened sensitivity around the BoJ's communications this week, especially in light of arch-hawk Hajime Takata's potential dissent on voting for a back-to-back hike.
Key Takeaways
- 01The BoJ is expected to hold rates steady at 1.25% but may lean hawkish in its communication.
- 02Potential changes in inflation forecasts for FY27 and FY28 could signal a shift toward higher rates in 2027.
- 03Market pricing reflects a strong expectation of a December hike, indicating trader sensitivity to BoJ messaging.
- 04Arch-hawk Takata's voting patterns will be closely watched for hints of a policy shift.
Full Analysis
What the desk is arguing
The desk frames this as an opportunity for the BoJ to reiterate its commitment to tightening monetary policy in response to persistent inflation risks. The outlook report due to be released is of particular interest, with previous forecasts indicating an inflation rate of 2.6% for FY27. Should the October update reflect stable inflation expectations, it would bolster support for expectations of rates rising towards 1.75-2.00% next year.
Moreover, the recent stability in inflation expectations, as evidenced by the September Tankan report showing a slight dip in business inflation projections, suggests that the BoJ may maintain its hawkish stance without hiking rates at this meeting. The market's attention on potential dissenting votes from more hawkish members like Takata underscores the uncertainty surrounding the direction of future policy.
Where it sits in our coverage
Our consensus target for USD/JPY stands at 156.0, with a range of 149.0000 to 161.7145 by December 2026. Notably, BNP Paribas and Rabobank have projected targets of 148.00 and 145.00 for the same date, respectively. This divergence suggests a comparatively bullish stance in our projections relative to some market peers.
How other firms see it
Firms like Mizuho and CIBC are aligned with our bullish outlook, targeting 163.0 and 159.1950 for March 2026, signaling a consensus for a weaker yen. In contrast, HSBC projects a significantly lower target of 145.00 for December 2026, representing a more pessimistic view on the yen's trajectory. The focus should also consider the implications of the BoJ's decision on USD/JPY and wider monetary policy across major central banks.
What the calendar says
With no imminent high-impact events scheduled on the calendar for Japan, market attention will remain fixed on the October 30 BoJ meeting, where any hint of policy divergence could sway expectations and positioning leading into the December decision.
Market Implications
Traders should monitor USD/JPY movements, particularly if the BoJ indicates a commitment to further rate hikes. The upcoming policy guidance could prove pivotal in either confirming or challenging existing rate hike expectations. A decisive move above 157.00 in USD/JPY may reinforce bullish sentiment in the lead-up to December.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bullish | 145.00 |
ING | Bullish | 152.00 |
MUFG | Bullish | 152.00 |
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Articles BoJ preview: Hawkish hold Published 10:40 Japan Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download After September’s policy rate hike to 1.25%, the Bank of Japan is expected to deliver a hawkish hold tomorrow. In focus will be the release
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