Bank of Japan Signals December Rate Hike After Inflation Win

The Bank of Japan is expected to maintain its policy rate at 1.25% during its two-day policy meeting ending Friday. This hawkish pause allows the central bank to evaluate how previous rate hikes have affected lending conditions before potentially raising the rate to 1.5% as early as December.

Governor Kazuo Ueda is likely to declare that the bank has achieved its 2% inflation target, ending a 14-year effort. This milestone signals a shift toward anchoring inflation by moving rates toward neutral levels. The bank is expected to revise its price forecast upward for the next fiscal year in an upcoming quarterly report, driven by embedded wage gains and global pressures such as AI demand and energy shocks from the Iran war.

This policy trajectory mirrors cycles seen at the Federal Reserve Bank of the US and the European Central Bank, both of which are also expected to keep their respective rates unchanged this week.