BOJ keeps rates steady, declares victory in hitting price target

On October 30, the Bank of Japan (BOJ) maintained its short-term policy rate target at 1.25% in a decision that left analysts divided over its future direction. The central bank revised up its inflation forecast, signaling its readiness to continue raising borrowing costs to curb mounting inflation risks. The BOJ's governor, Kazuo Ueda, will hold a news conference at 3:30 p.m. to explain the policy decision.

Analysts expressed mixed reactions to the BOJ's decision. Tohru Sasaki, a chief strategist at Fukuoka Financial Group, noted with surprise that speeding up ETF sales was uncharacteristic and potentially unhealthy for the central bank. He expressed concern over the impact on the Japanese stock market. Hirofumi Suzuki, a chief FX strategist at SMBC, suggested that the BOJ's tone was slightly less hawkish due to the dissenter's vote and the nuance in the language used to describe underlying inflation. He added that if the stock market decline was significant, Ueda's tone might turn more dovish.

MASAHIKO LOO, chief fixed income strategist at State Street Investment Management, emphasized that the BOJ's recognition that underlying inflation had reached its 2% target was a significant shift from previous assessments. He pointed out that recent global financial condition developments, such as France's situation and the decline in US equities, contributed to a tightening of financial conditions, but left the BOJ under no pressure to rush into a rate hike. LOO's base case remains around 1.75%, as Japan joins the synchronized global tightening cycle.