Sanae Takaichi, advisor: It is too early for the Bank of Japan to raise interest rates in October; December would be more appropriate.

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The likelihood of the Bank of Japan raising interest rates this month has dropped significantly.

On October 6, Etsuro Honda, the chief economic advisor to Sanae Takaichi, stated that a rate hike in October is "probably difficult," and suggested that December would be a better time for a rate hike, adding that a 25-basis-point increase would not be a problem then.

Bets by traders on a BOJ rate hike on October 30 dropped sharply, falling from about 68% a week ago to around 25% on Monday. Tomomi Takai hopes the Bank of Japan will remain cautious over rate hikes, though she has yet to mention a specific timetable.

Wallstreetcn previously reported that after Tomomi Takai's victory in the LDP presidential election, market expectations for central bank policy underwent a major shift. The Nikkei 225 hit a record high on Monday, and the yen fell through the key 150 level against the dollar, reflecting investor expectations for more stimulus and a slower pace of rate hikes.

Etsuro Honda issued a warning, saying that excessive yen depreciation would push up inflation, and remarked that the breach of 150 in the exchange rate was "a bit overdone." Following his comment, the yen briefly rebounded to around 149.90, but soon the USD/JPY climbed further, with the yen depreciating by 1.91% on the day.

Sanae Takaichi’s Cautious Stance

As a protégé of former Prime Minister Shinzo Abe, Sanae Takaichi's policy approach is deeply influenced by "Abenomics."

Etsuro Honda himself is one of the chief architects of "Abenomics," which is centered on flexible fiscal policy and loose monetary policy.

Honda revealed that Takaichi hopes the Bank of Japan will "act cautiously" regarding rate hikes, though she herself has not mentioned a specific timeframe.

This cautious attitude is consistent with her past remarks.

Reportedly, she referred to rate hikes last year as "foolish." Although her rhetoric has softened somewhat in the recent LDP leadership race, she reportedly stated in a survey that rates should stay unchanged at present.

Takaichi is expected to become Japan’s first female prime minister in a parliamentary vote around October 15.

Economic Data and Internal BOJ Division

Despite a shift in market expectations, the macroeconomic backdrop supporting rate hikes still exists.

Japan’s inflation rate has remained at or above the BOJ's 2% target for over three years. Meanwhile, as of the second quarter ending June this year, Japan's economy has expanded for five consecutive quarters. These data largely match the central bank's forecasts.

At the same time, internal divisions within the BOJ have become increasingly apparent, a key reason for the previous rise in rate hike expectations.

At last month’s policy meeting, two out of the BOJ’s nine committee members voted against keeping rates unchanged at 0.5%, citing strong inflation momentum. This was the first time such dissent occurred since Kazuo Ueda became governor.

In addition, another member considered dovish also said last week that the need for a rate hike is increasing.

Possible Adjustment to Policy Framework

One potential change under close watch is whether the new government will revise the 2013 joint statement agreed between the government and the BOJ.

This statement has provided the theoretical basis for the BOJ’s aggressive monetary easing policy aimed at achieving 2% inflation over the past decade. After winning the election last Saturday, Takaichi said she would consider whether the current framework is optimal.

On this, Honda said he has advised Takaichi that there is "no need to rush to revise" the statement. However, he added:

Once the review stage begins, even those elements which do not currently need to be amended could be revised, including the 2% price stability target.

Risk Warning and DisclaimerThe market involves risk, investment should be cautious. This article does not constitute personal investment advice and has not taken into consideration individual users' specific investment goals, financial conditions, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own circumstances. Investment is at your own risk. ```