Bank of Japan remains on hold in September

BOJ stands pat: At its meeting ending on 19 September, the Bank of Japan (BOJ) decided by a seven-to-two vote to keep its policy rate at 0.50%, extending the pause in its hiking cycle from subzero rates that began in March last year. Meanwhile, the BOJ said it would begin offloading its over 500 billion haul of ETFs in the coming months.

Economic uncertainty prompts pause: The decision to hold was widely expected by analysts following the resignation earlier this month of Prime Minister Shigeru Ishiba, which added to the economic uncertainty that has been created by higher U.S. tariffs. Meanwhile, the BOJ’s decision to sell its ETFs was likely influenced by the recent rise in stock prices, with Japan’s Nikkei 225 index up about 25% since April, the start of the current fiscal year.

Our Consensus Forecast stays steady: Our panelists’ forecasts for Japan’s policy rate at the end of this year have remained largely stable since early May. Most of our panelists see the BOJ raising its policy rate by 25 basis points in Q4. This aligns with the BOJ’s forward guidance that it will “continue to raise” its policy rate assuming its outlook for GDP growth and inflation is realized. The BOJ’s next meeting is scheduled for 29–30 October.

Panelist insight: ING’s Min Joo Kang and Chris Turner commented: “With reduced uncertainty and expected rate cuts from the Federal Reserve supporting US growth, the BoJ can proceed more confidently with policy normalisation. Core inflation has remained above 3% for an extended period. Even after a 25bp increase, the policy rate of 0.75% remains below the estimated neutral rate, which means that monetary conditions continue to be accommodative. We therefore expect the BoJ to deliver a 25bp hike in October.” Goldman Sachs analysts have stayed hawkish: “We maintain our base case scenario for the next rate hike to be in January next year. This is because by January the BOJ will have gathered information on wage increase momentum for next year's shunto spring wage negotiations, on which it places a high importance. However, we see a possible rate hike in December this year as a sub-scenario.”

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