Published: 2025-10-29T04:14:42.000Z

BoJ Preview: Here we go again

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The BoJ will keep rates unchanged at 0.5% in the Oct 30th meeting 

 

The BoJ will likely keep rates unchanged at 0.5% in the October 30th meeting to avoid a direct confrontation with PM Takaichi's policy tilt. Despite the current inflationary dynamics are supportive and the clarity from the U.S.-Japan trade front have freed the BoJ's hand to tighten, the newly elected PM has long favored a simulative environment for Japan and the BoJ will likely take more time to analyze the impact of her incoming policy before acting. 

In a medium term, Takaichi's expansive fiscal spending, no matter the allocation, will be inflationary and theoretically to drive the BoJ into more tightening. However, it is hard to tell whether Takaichi will instruct the BoJ to act like Abe's era and how expansionary she will be. Given the current Japanese business price/wage setting behavior, we can first ruled out another Abe era stimulus from the BoJ as the momentum of business hiking wage is gathering stream. Secondly, the Japanese government before Takaichi took position is originally cutting their fiscal budget to control the debt to GDP ratio and would be difficult for the new PM to completely overthrow what her predecessor have done. Indeed, the "Abe prodigy" has already openly suggest that she will be responsibly in spending to avoid further worsening the Japanese debt. Thus, the fiscal picture may not be as dim as some market participants anticipate.

Regardless, the new PM succeeded a difficult Japanese economy and may need some innovative strategy to push forward. Takaichi does not seem to be the person of simply following old custom but fighting a way out from her political and personal history, so we will have to wait and see what her policy will be. The BoJ will be in the same chapter, carefully analyze any new policy before further tightening or giving forward guidance. The market is mostly pricing a hike either in December or January and we believe there is a possibility to see the next 25bps hike coming in 2025, if Takaichi could reveal her policy soon.

 

 

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