The Bank of Japan (BOJ) is expected to maintain its overnight interest rate at 1.25% during its upcoming meeting on October 29-30, 2026. Governor Kazuo Ueda has emphasized that while further rate hikes are necessary to stabilize inflation around the 2% target, the situation does not warrant back-to-back increases. The BOJ raised the rate to 1.25% from 1% in September, citing growing upside risks to price stability.
Ueda has stressed the importance of pre-emptive adjustments to avoid rapid rate hikes that could disrupt the economy and markets. He noted that the consumer price index (CPI) is a lagging indicator, and the BOJ must stay ahead of inflation control. Board member Junko Koeda echoed this sentiment, advocating for continued rate hikes to remove the effects of large-scale easing conducted from 2013 to 2023.
The BOJ is likely to raise the policy rate to 1.50% in December or January and further to 1.75% in March or April. The board is divided into four groups, with hawks like Hajime Takata and Naoki Tamura pushing for faster rate hikes, while doves like Toichiro Asada and Ayano Sato have opposed recent increases. The neutral members support Ueda's direction.
On the economic front, the Tokyo CPI for October is forecast to remain high at 2.7% to 2.8%, driven by the waning impact of fiscal support programs. Industrial production is expected to rebound in September, supported by global demand for AI-related equipment and a recovery in the auto sector. Retail sales are forecast to rise for the seventh straight month, boosted by cooler weather and extended holidays.