Daiwa expects BOJ to hold rates but soften language, keeping December live
Economists at Daiwa Securities think the Bank of Japan will keep borrowing costs unchanged this month, yet may reframe its inflation outlook in a way that leaves a December rate increase firmly in play for yen and JGB traders.
According to Daiwa, policymakers are likely to judge that underlying price growth has effectively arrived at the 2% goal, which would mark a pivot away from trying to push inflation higher and toward simply holding it steady near that mark. The brokerage views this as a meaningful change in messaging even if the benchmark rate itself stays put.
Fresh readings published this month showed both households and firms trimming their inflation expectations, yet worries that price growth could overshoot have not gone away. Climbing oil prices have reignited cost pressures earlier in the supply chain, and some officials inside the central bank are reportedly bracing for that effect to build further next year.
Governor Kazuo Ueda hinted at this change in direction recently, remarking that because underlying price trends are now close to the 2% goal, the institution can no longer accept further acceleration and instead wants to keep it anchored there. Daiwa anticipates the upcoming Outlook Report will describe inflation as already matching the target rather than simply heading toward it, and argues that if the report still flags risks of inflation running too hot, that would strengthen the case for moving sooner rather than later.
Board member Hajime Takata could once more break ranks in favour of tightening, repeating the dissent he lodged in July, pointing to strong worldwide demand, AI-linked products among them. By contrast, Naoki Tamura — an advocate of gradually lifting rates toward a neutral setting around 2% — is expected to support standing pat, given how recently the September increase took effect.
Daiwa also projects the central bank will raise its FY26 growth estimate to 0.8% from 0.6% and nudge the FY27 core inflation forecast up to 2.5% from 2.4%, alongside a slight downgrade to FY26 core-core inflation, to 2.4%. Investors will be scrutinising Ueda’s post-meeting remarks for any shift away from his usual framing of decisions being made one meeting at a time, toward language that points more explicitly to the following gathering — a change that could be interpreted as paving the way for a December move.
Why it matters: Even without an actual rate change, a more hawkish tone from the BOJ typically strengthens the yen and lifts short-dated Japanese government bond yields as traders bring forward bets on a BOJ December hike, whereas a more cautious message could leave the yen vulnerable.
Sources: Investing.com (economy); investingLive; investingLive