On Thursday (October 31), the Bank of Japan maintained its ultra-low interest rates as expected, keeping the short-term rate target at 0.25%. Despite this, the Bank expressed a hawkish stance in its statement, emphasizing that future policies will focus on the risks of domestic economic recovery and closely monitor global economic developments, particularly in the U.S. This statement led to a broad rebound in the yen exchange rate, with USD/JPY dropping to 152.83, EUR/JPY to 165.84, GBP/JPY to 197.80, and AUD/JPY to 100.34.
In the quarterly outlook report released by the Bank of Japan, the Bank lowered its core inflation forecast for fiscal year 2025 to 1.9% but expects core inflation to rebound to 2.1% in fiscal year 2026. Furthermore, the Bank remains optimistic about "core-core" inflation, excluding fuel costs, predicting it will reach approximately 2% during the 2025 to 2026 period.
Analysts noted that the Bank of Japan's choice to maintain its position was anticipated, as the current political situation remains unstable, making further rate hikes challenging. Analysts generally expect no more rate hikes within the year by the Bank of Japan, but nearly 90% of analysts believe a hike could be implemented by the end of March next year.
Against the backdrop of increasing global uncertainty, the market is paying particular attention to statements from Bank of Japan Governor Ueda Kazuo. Ueda has repeatedly emphasized that if the economy aligns with forecasts, the Bank will proceed with rate hikes. September's factory output and retail growth data indicate that Japan's economy is moderately recovering, but the ruling coalition lost its majority after the weekend election, complicating policy implementation and increasing uncertainty over policy adjustments.
