Overview
- The Bank of Japan left its policy rate at 1.25% at the end of its two-day meeting but used its quarterly Outlook Report to signal that core price gains have roughly hit the 2% goal.
- Tokyo data showed core consumer prices excluding fresh food rose about 2.6% in October, a reading that reinforced the BOJ’s assessment that underlying inflation is at target.
- Markets and economists moved to price a high probability of a 25bp hike in December after the hold, with traders focusing on any change in the bank’s guidance for timing and pace of further increases.
- Short-term Japanese bond yields and the yen were sensitive to the news yet steadied after a strong two-year JGB auction underlined healthy demand for government debt.
- Policymakers cited persistent wage gains, a weak yen and higher energy costs from the Middle East as reasons to guard against an inflation overshoot, making the BOJ’s board vote split and Ueda’s press-conference wording the key items to watch next.