MediumIV Macro Policy & Sovereign Debt22 October 2026, Thursday
Bank of Japan set to hold rates at 1.25% next week
Nikkei reported on 22 October that the Bank of Japan will keep its policy rate at 1.25% at its 29–30 October meeting. The bank raised rates by 25 basis points in September; markets price no move in October, and the debate is between December and January 2027.
According to Nikkei Asia, Governor Kazuo Ueda and the policy board will leave rates unchanged, despite judging that underlying inflation has reached the 2% target. A Reuters report citing 4 sources, carried by investingLive on 20 October, says the bank may nudge up its inflation forecast for fiscal 2027 as oil prices pass through to consumer prices. The same 4 sources say the board sees no evidence of a broad wage-price spiral.
Views diverge on the timing of the next hike. An investingLive note dated 20 October said markets were pricing almost zero chance of a move in October and roughly 73% for December. Standard Chartered, writing on 22 October, expects a hawkish hold this month, keeps January 2027 as its base case for the next hike and treats December as a live meeting. It sees weak domestic demand and sluggish consumption acting as a brake, while Tokyo consumer and producer prices carry upside risk.
Standard Chartered sees 2 reasons for the bank to keep normalising: supporting the yield differential and preventing a renewed slide in the yen. It regards that risk as more pronounced if the Fed turns back to tightening or holds rates high for longer than expected. The 20 October investingLive note says high oil prices and fresh yen weakness could keep imported inflation alive.
Talay assessment
Bottom line
An October hold is largely priced in; what matters is whether the statement points to December or January. A higher inflation forecast would strengthen the case for December, and that would feed into global funding conditions through the yen and longer-dated Japanese yields. Weak domestic demand, meanwhile, keeps the board from rushing; the December–January split between the two sources reflects that balance.
Likely effects
- YenPositiveWeeks
A hawkish tone and a higher inflation forecast would support the yield differential and limit renewed yen weakness.
- Global fundingNegative1–6 months
Pricing in a December hike raises the cost of trades funded in cheap yen; volatility could rise in emerging-market assets, Türkiye included.
- Japanese householdsUncertainWeeks
Holding rates while oil keeps passing through to consumer prices reads as a choice to protect weak consumption.
Possibilities, ranked
- 1Hawkish hold, December live55%
The rate stays at 1.25%, the inflation forecast goes up and the statement leaves the door open to a December hike.
Watch: The 29–30 October statement and any revision to the fiscal 2027 inflation forecast
- 2Cautious tone, shift to January30%
The board stresses weak domestic demand, markets cut December odds and hike expectations slide to January.
Watch: December hike odds falling well below roughly 73%
- 3Surprise hike15%
Oil-driven price pressure and concern over the yen push the board to raise rates in October.
Watch: The policy rate moving above 1.25% on 29–30 October
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Policy rate▲ 1.25%
- December hike probability▲ ~73%
- September hike▲ 25 basis points