Sanae Takaichi’s appointment is imminent; the Bank of Japan may delay its rate hike schedule.
Market expectations for an interest rate hike at the Bank of Japan’s policy meeting on October 30 have cooled significantly. BOJ officials have indicated that even if the economy makes progress toward achieving price targets, there is no urgency to raise rates next week.
According to media reports, BOJ officials believe that the economy and inflation are generally developing as expected, and the probability of realizing their outlook is gradually and steadily increasing. While they do not rule out the possibility of another rate hike within the year, there are currently no decisive factors compelling them to raise the benchmark rate at next week’s policy meeting.
This stance aligns with the monetary easing position of Sanae Takaichi, who is about to take office as prime minister. Known for her advocacy of monetary easing policies, Takaichi’s election as LDP president saw the yen weaken and the stock market rise, reflecting market expectations for stimulus policies and a delay in rate hikes by the central bank.
External Uncertainties Remain
According to people familiar with the matter, BOJ officials believe the impact of US tariffs has not yet been fully reflected in the data. Uncertainty surrounding US economic developments and its impact on Japan remains high. These external factors give the BOJ reason to delay raising interest rates.
Against the backdrop of Sanae Takaichi taking office as prime minister, central bank officials are cautious about the necessity for immediate action.
The central bank will closely monitor developments in financial markets, especially fluctuations in the yen exchange rate. Officials indicated that financial market dynamics will be a key consideration, as the yen currently has a more significant impact on inflation than in the past.
Compared with the past, fluctuations in the yen now have a more direct impact on inflation, making the exchange rate an important factor in policy decisions. Officials will continue to evaluate all relevant data ahead of the policy meeting to provide a basis for their final decision.
Probability of a Rate Hike This Month Around 25%
According to CCTV news, on October 21, in the first round of prime ministerial nomination voting in the House of Representatives, LDP president Sanae Takaichi won, becoming Japan’s new prime minister.
Currently, there are strong market expectations that the new Japanese government led by Sanae Takaichi will maintain expansionary fiscal policies.
Regarding the new prime minister, the BOJ stated it will continue to work closely with the government, but its decisions will depend entirely on assessing progress toward achieving price stability targets. According to insiders, some officials pointed out that a preliminary assessment of the new government’s possible economic and fiscal policies could be enough to determine whether to raise rates.
Many central bank watchers believe that the BOJ does not want to act too quickly after Sanae Takaichi takes office, to avoid repeating past conflicts with the government over rate hikes.
In his last public speech before the decision, Governor Kazuo Ueda appeared to avoid triggering new speculation, simply reiterating the central bank’s policy stance. This is in contrast to his explicit hints of upcoming change before the January rate hike.
Traders currently see about a 25% probability of a rate hike this month, a slight increase this week but still far below the roughly 70% expected at the end of last month. Overnight swap index pricing indicates a roughly 38% chance of a rate hike at the December meeting.
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