Bloomberg poll: BOJ next rate hike seen in December, no October move

Every economist polled has ruled out a move on October 30, leaving the tone of the BOJ's statement and outlook report to decide where the yen heads next. If the Bank of Japan says underlying inflation has hit 2%, that would be a landmark shift and reinforce bets on a December rate rise. The yen could firm and Japanese government bond yields climb as a result. Board votes also matter: additional objections from members chosen under Takaichi would probably push the yen lower, whereas a hawkish member calling for a hike would do the opposite. Oil is still a major factor for Japan's inflation path because the country imports large amounts of energy. An escalation in the Middle East that pushes crude higher would support the argument for regular quarterly moves, though it would also hurt Japan's trade balance and the yen.

Earlier:

• Bank of Japan expected to raise rates to 1.50% in December; 69% of economists forecast a Q4 increase

Central bank observers have shifted decisively to expecting a December increase, and the larger issue for this month is whether the BOJ can at last claim success on 2% inflation after 13 years of attempts.

Summary:

• In a Bloomberg poll, 83% of economists forecast the BOJ's next rate rise for December, versus 35% a month earlier, when January was the leading choice.
• No one predicts action at the October 30 gathering, and the policy rate remains at 1.25%.
• Expectations for a hike every quarter are held by 67%, up from 46%, while the median terminal-rate projection stays at 1.75%.
• October's main point of attention is whether the BOJ sees underlying inflation as having attained the 2% goal, a milestone it has not announced since adopting the target in 2013.
• Roughly two-thirds of respondents believe the administration of Prime Minister Sanae Takaichi has moderated its position on rate increases, following Washington's call for Japan to abandon reflationary policies.
• The September increase prompted two dissents from board members picked by Takaichi, so voting dynamics remain in the spotlight.

According to the Bloomberg survey, over 80% of BOJ observers now see December as the timing for the central bank's next rate increase, while no respondent forecasts action once the upcoming meeting ends on October 30.

At the meeting that wraps up on December 18, 83% of economists expect borrowing costs to move up from 1.25%, a sharp jump from the 35% recorded a month earlier, when January was the favoured timeframe. Another two-thirds of respondents anticipate a hike at three-month intervals, compared with 46% previously. That points to economists expecting the pace to stay steady after September's rise, which was the second in three months and the most rapid tightening since 1990. The median projection for the cycle's terminal rate remained 1.75%.

The question that will take centre stage at this month's meeting, in the view of many economists, is whether the BOJ determines that underlying inflation has reached the 2% target, a conclusion it has not announced since the goal was adopted in 2013. Morgan Stanley MUFG Securities analysts predict the bank will indicate underlying inflation is close to 2% and will keep policy on hold with a hawkish bias. The quarterly outlook report due with the decision is expected to keep inflation forecasts largely stable, with only a modest upward adjustment for next fiscal year.

The September move put the policy rate, for the first time, inside the BOJ's estimated neutral band of 1.1% to 2.5%, which has sharpened market focus on the eventual peak.

Politics still comes into play. Prime Minister Sanae Takaichi has a reputation for favouring loose monetary policy. After US Treasury Secretary Scott Bessent pressed Japan to abandon reflationary policies, though, Takaichi and her ministers said they are not seeking reflation. In the survey, roughly two-thirds of economists now say the government has become less rigid on BOJ rate hikes. According to strategists at Mitsubishi UFJ Morgan Stanley Securities, the prime minister's office likely views additional increases with little enthusiasm, yet will probably quietly go along for now, mainly due to ties with the US.

Attention is also on board votes. Toichiro Asada and Ayano Sato, both named by Takaichi, dissented from September's hike, and that contributed to yen weakness. There is a possibility, according to some economists, that hawkish board member Hajime Takata will call for a hike at this month's meeting as well.