The Bank of Japan is expected to hold its policy rate at 1.25% at its meeting ending Friday 30 October, forgoing a back-to-back rise to let last month's increase work through lending — while signalling underlying inflation has roughly reached its 2% target. This is an expectations story based on unnamed sources familiar with the bank's thinking, not a Bank of Japan announcement.

Higher oil prices may lift the inflation outlook

The bank raised its key rate to 1.25% last month, its highest in 31 years. Governor Kazuo Ueda has warned underlying inflation could exceed target amid Middle East tensions, yen weakness and AI-linked demand.

December comes into focus

Sources familiar with the bank's thinking told Reuters it may raise its inflation forecast for next fiscal year, as higher oil prices prolong price pressures. In July it forecast core inflation at 2.5% for the fiscal year ending March 2027, easing to 2.4% the next year, assuming pass-through from the initial fuel spike would ease from the second half of next year. Any revisions are expected to be modest, with little evidence so far of a sustained wage-price cycle. Growth forecasts of 0.6% for fiscal 2026 and 0.8% for fiscal 2027 are also expected to stand.

The pause, if confirmed, would not end tightening. Analysts surveyed by Reuters expect 1.50% in December, with a terminal rate around 1.75% or 2%, and some see a higher peak possible. September data point that way: core consumer prices rose 2.1% year on year, while the narrower gauge excluding fresh food and fuel rose 2.4%. The yen is the wild card — a renewed slide would lift import costs and could bring a hike forward.

Sources: Reuters, Reuters (via LA Post), Aju Press.