Expectations for a Bank of Japan rate hike this week have all but vanished as political change in Tokyo and economic uncertainty in the U.S. cloud the outlook for policy tightening.
The BOJ begins a two-day meeting on Wednesday, but traders have slashed the odds of a move to just 11%, down from about 60% at the start of October.
Japan’s new Prime Minister Sanae Takaichi, a fiscal and monetary dove seen as the successor to “Abenomics,” is expected to pursue expansionary spending and resist early tightening. Her first meeting with U.S. President Donald Trump, set for later this week, could add further volatility to the yen, which has swung between ¥149/153 (and change) in recent weeks.
While BOJ board member Hajime Takata has argued for a hike, Governor Kazuo Ueda and other policymakers have offered no clear signal. Political and fiscal uncertainty has pushed Japanese bond yields to 17-year highs as markets brace for higher debt issuance and possible consumption tax cuts.
The fragile U.S. economy also complicates BOJ thinking. With the Federal Reserve expected to cut rates this week amid slowing growth and tariff-driven inflation, Japanese officials are wary of tightening policy too soon.
Most economists now expect the BOJ to stay on hold, with attention turning to December as the next possible window for action. The bank will also release updated economic and inflation forecasts alongside Thursday’s decision.
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The yen is very likely to stay volatile as rate-hike hopes fade, while bond yields remain elevated on fiscal expansion risks and uncertainty over Japan’s next policy steps.
