BOJ rate hike expectations for this month cool! People familiar with the matter: another rate hike as early as December

Title context: BOJ rate hike expectations for this month cool! People familiar with the matter: another rate hike as early as December Text: People familiar with the matter said BOJ officials are leaning against a rare back-to-back rate hike this month, but are still considering the possibility of raising rates again as early as December. The people said BOJ officials see little need for consecutive rate hikes absent signs that upside inflation risks will suddenly intensify. The people added that the BOJ will instead carefully scrutinize economic data to determine whether another rate hike is necessary as early as the December policy meeting. However, the people said the final policy decision at the Oct. 30 meeting could still change at the last minute. This suggests the BOJ has not completely ruled out the possibility of an October hike, but at this stage prefers to observe the impact of previous hikes on the economy and prices before deciding its next move. After the news, the yen initially weakened, then recovered some ground. As of press time, the dollar was slightly lower against the yen at 158.08. The policy board led by BOJ Governor Kazuo Ueda raised borrowing costs to 1.25% last month to address upside inflation risks. The September hike was the BOJ's second in three months and its fastest pace of increases since 1990. Ueda said the hike was justified as the BOJ enters a new policy phase with greater focus on upside price risks. The hike also came amid sustained pressure from U.S. Treasury Secretary Bessent, who has urged the BOJ to continue normalizing monetary policy and help strengthen the yen. Still, the BOJ has not raised rates in two consecutive months since 1980, underscoring its long-standing preference to first observe the impact of policy adjustments before deciding on further action. Pricing in the overnight index swap market shows traders see about a 10% chance of a BOJ hike this month, while the probability of a hike by December rises to 88%. Among economists surveyed last month, about one-third expected the BOJ to raise rates in December, while more than half predicted the BOJ would wait until January next year to act. In late last month, market-implied odds of an October BOJ hike briefly rose to about 40%. But as Fed officials sent clear signals and investors no longer expected the Fed to raise rates this month, market expectations for a BOJ October hike also weakened. BOJ waits for the right time to hike again, with stable price trends key The people said Japan's economy and inflation are broadly in line with BOJ expectations, and price trends are expected to align with the 2% inflation target at some point within the next 18 months. Although more than a decade after setting an inflation target in 2013, the BOJ can now finally consider underlying inflation to be around 2%, that does not mean its mission is complete. The people said the BOJ's goal is not just to achieve 2% inflation, but more importantly to keep inflation stable near that level. Ueda also touched on this in parliamentary remarks on Tuesday. He said it is crucial to keep price trends stable around 2%. The latest price data show Japan's inflationary pressure has not faded. Japan's September corporate goods price index rose 6.8% year-on-year, down from 7.6% in August the slower pace of increase suggests the BOJ currently has no urgent need to act; the yen-denominated import price index rose 24.5% year-on-year, indicating a weak yen is still pushing up import costs, and the BOJ needs to judge how much wholesale price increases will pass through to consumer prices. Meanwhile, household inflation expectations also remain elevated. A BOJ survey showed 88.6% of households expect prices to rise over the next year, down from 90.4% in the previous survey; the share of households expecting prices to rise over the next five years rose to 86.5% from 86.1% in June. The people said that with underlying inflation already near the BOJ's target, the bank will continue to look for the right timing for another rate hike while assessing the impact of hikes so far. In addition, the BOJ has pledged to closely monitor the situation in the Middle East, AI-related demand and changes in foreign exchange rates in deciding the timing of a hike. The BOJ will release its latest quarterly economic outlook along with its rate decision on Oct. 30. The people said officials will assess the impact of high oil prices and consider whether to incorporate a pending temporary cut to the food consumption tax into economic forecasts. Oil prices have risen about 15% since the BOJ compiled its latest quarterly economic projections in late July, intensifying inflationary pressure facing Japan. Japan relies heavily on natural resource imports, making it more vulnerable to energy price increases.