Bank of Japan officials lean against a back-to-back rate rise in October

Bank of Japan officials are leaning against a rare back-to-back interest-rate increase this month, while still eyeing the possibility of another move, Bloomberg reported^1,2. Governor Kazuo Ueda’s board lifted borrowing costs to 1.25% last month as it sought to stay on top of upside inflation risks³.

The data released on Tuesday pointed in both directions. A Bank of Japan survey showed 88.6% of households expect prices to rise a year from now, down from 90.4% in the previous survey⁴, while a separate reading of the same opinion survey showed 86.5% expect higher prices in five years, with an increasing number of people expecting price rises over that horizon⁵.

Wholesale prices also kept climbing. Bank of Japan data showed wholesale prices rose 6.8% in the year to September⁶, and the September Corporate Goods Price Index showed chemicals wholesale inflation rising and plastic product prices up 12.8% year on year even as the overall producer price index eased⁷.

Why it matters to investors

Japanese policy is the hinge for the yen and for the cheap funding that supports positions well beyond Japan. The currency responded immediately: the yen strengthened 0.2% to 158.215 per dollar after the wholesale price data⁶, and rose again against other major currencies in late European trading after Ueda’s comments⁸.

The second channel is long-dated bonds. MUFG Research expects the ten-year Japanese government bond yield to keep trading at an elevated level of around 3% in the week of 13 October⁹. A Japanese long bond yielding that much changes the arithmetic for Japanese institutions that have long funded purchases of foreign debt, which is why a decision taken in Tokyo shows up in yields elsewhere.

Holding at 1.25% this month while leaving another increase on the table is the combination that keeps both channels unsettled^1,3.

What to watch

The reporting is about what officials are leaning towards, not a decision^1,2, so the meeting itself is the test. The softening in one-year household expectations, from 90.4% to 88.6%, is the kind of evidence a board reluctant to move twice in a row can point to⁴; the steadiness of the five-year reading at 86.5% is the counter-argument⁵.

Watch the split between the two price measures as well. Overall producer price inflation eased in September while specific inputs such as chemicals and plastics rose⁷, and which of those the board treats as the signal will shape the next move.