Bank of Japan set to hold at 1.25% next week as Japan’s biggest union seeks 6% pay rises

The Bank of Japan will hold its key interest rate steady at 1.25% at its policy meeting on 29 to 30 October, according to a report¹. The central bank raised rates in June and again in September 2026, taking the policy rate to a 31-year high of 1.25%⁷. Most BOJ watchers expect the next rate rise in December⁶.

Japan’s biggest labour group set a midpoint target of 6% for its 2027 wage increase talks^2,3. The target includes a 4% base pay increase^2,3. The group framed the figure as a message about how high pay rises should go, with the BOJ’s rate path in the background².

Separately, strength in Japanese loan demand is expected to leave scope for more BOJ hikes⁵. The data, released ahead of next week’s meeting, reinforces the dominant market view that the central bank will continue to raise rates⁵.

Why it matters to investors

Wages sit at the centre of the BOJ’s decisions. For the central bank, the key lies in whether wage growth momentum accelerates further and spreads across the economy, one analyst said⁴. The union’s target is in line with the BOJ’s aims⁴.

The yen was set for its biggest rally in a month as risk-averse investors shunned the dollar⁹. “Expectations with regard to the Bank of Japan’s policy outlook are coalescing,” one market participant said⁹. The yen ticked up to 157.55 after Deputy Governor Ryozo Himino signalled his readiness to raise borrowing costs¹⁰.

The wide yield gap between the United States and Japan, together with the BOJ’s cautious stance, remains a central factor for the yen¹¹. Investors are focused on both the Federal Reserve and BOJ meetings¹¹.

Some economists see room for more tightening than markets expect. Oxford Economics said the economy’s resilience to higher interest rates may allow the BOJ to raise its policy rate beyond 1.75%⁸. Prime Minister Takaichi is known as a supporter of monetary easing to help spur growth⁶.

What to watch

Next week’s meeting is the near-term test of whether the BOJ holds at 1.25% as expected¹. Traders will look for signals from Himino or other board members about a December move, which most BOJ watchers expect^6,10.

Over the longer run, the 2027 wage talks will show whether the union’s 6% target turns into pay rises broad enough to meet the BOJ’s test of spreading wage momentum^2,4.