Yen Strengthens After Ueda Hints at Rate Hike

Insights – As expected, the Bank of Japan (BoJ) kept interest rates unchanged at its October meeting. BoJ Governor Kazuo Ueda expressed concerns over the yen's weakness and hinted at potential rate hikes tied to inflation, leading to a stronger yen.

On October 31, the BoJ concluded its two-day policy meeting, maintaining its benchmark rate at 0.25%. This met market expectations due to uncertainties in Japan’s political landscape and the U.S. election.

The BoJ lowered its 2025 core inflation forecast from 2.1% to 1.9%, while maintaining the 2026 forecast at 1.9%. Analysts at Crédit Agricole noted that yen depreciation was a key concern for the BoJ.

Ueda’s Comments Raise Rate Hike Expectations

Ueda reiterated that the BoJ has no set timeline for a rate hike and will assess data at each meeting. Sustainable wage growth and inflation exceeding the BoJ’s target remain key conditions for future rate increases. 

Ueda stated that domestic wage and price trends align with forecasts and noted that wage increases are increasingly influencing service prices. He added that recent political events in Japan wouldn’t directly impact the BoJ’s price outlook, though policy changes could prompt revisions.

Here Are the Analysts’ Views

Before Ueda’s remarks, Commonwealth Bank’s Carol Kong predicted limited downside for the yen, noting that stronger rate hike signals could lift the currency. Economists at Daiwa Securities said the BoJ is still signaling monetary policy normalization despite political uncertainties.

Kazutaka Maeda of Meiji Yasuda Research expects a rate hike in December, though political instability and the U.S. election could delay it. Some analysts also see wage growth and cost pass-through supporting a December hike.

However, a Reuters survey found that over half of economists expect no rate hike before year-end, with 90% anticipating one by March next year.