The Bank of Japan (BOJ) announced on October 31 that it would keep the policy rate unchanged at 0.25%, meeting market expectations. This decision marks the second consecutive meeting of rate stability following the BOJ’s rate hike in July.

In its quarterly outlook report, the BOJ forecast that core inflation for fiscal year 2024 will remain around 2.5% due to easing pressures from import prices, with a gradual decline toward 2% expected between 2025 and 2026 amid moderate wage growth.

Regarding economic growth, the BOJ stated that Japan’s GDP growth has the potential to exceed its potential growth rate (0.5-1%) under conditions of continued financial easing and modest overseas economic growth.

(Source: BOJ)

In the post-meeting press conference, BOJ Governor Kazuo Ueda remarked that, if economic and price trends evolve as anticipated, the central bank would respond by raising rates. Ueda also noted that factors contributing to market volatility, such as weak U.S. economic data, are gradually fading and that market stability has improved. While the upcoming U.S. election poses a potential risk, the BOJ would not require extended time to monitor market conditions.

Ueda’s comments reinforced his traditionally hawkish stance. According to Bloomberg, the majority of economists now believe that the probability of a rate hike in January has increased, with market expectations for a January hike rising from 19% in September to 32% in October.

 

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• Outlook for Economic Activity and Prices
• Ueda Indicates BOJ Still on Track for More Rate Hikes After Hold

Japan’s labor market continued to show tightness in September, according to data released by the Ministry of Internal Affairs and Communications and the Ministry of Health, Labour and Welfare on October 29.

The unemployment rate fell to 2.4%, down from 2.5% in the previous month, while the job-to-applicant ratio rose to 1.24 from 1.23, highlighting persistent labor shortages in the Japanese workforce.

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Japan’s largest labor union, Rengo (the Japanese Trade Union Confederation), also announced its intention to seek a 5% wage increase in next year’s negotiations, following a record 5.1% raise this year—the largest in 33 years.

This tight labor market offers a relatively positive signal for the Bank of Japan (BOJ), which has long aimed to support moderate inflation through real wage growth as part of its strategy to normalize monetary policy.

In March, the BOJ raised rates for the first time in eight years, ending its negative interest rate policy and yield curve control. In July, it raised rates again, suggesting it would consider further hikes if inflation met expectations.

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While these comments initially triggered significant market volatility, the BOJ has since clarified that it would avoid rate hikes during periods of economic instability, aiming to calm market concerns. Nevertheless, its commitment to policy normalization remains clear.

The market broadly expects the BOJ to hold rates steady in October, with further rate hikes possible in December or January.