The USD/JPY pair edged slightly higher during Asian trading hours on Monday (October 26), hovering around 157 and remaining within the lower range seen since late September. Market attention has now turned to the upcoming BOJ meeting outcome, with Daiwa Securities' forward-looking report offering a key reference for assessing policy direction. Daiwa Securities expects the BOJ to keep rates unchanged this month but to declare that underlying inflation has reached 2%, signaling a shift in policy focus toward stabilizing inflation at that level. Board member Takata may again propose a rate hike, and Ueda's language will be closely watched for hints of a December move. The central bank is expected to raise the official cash rate to 3% before the election, with elevated oil prices and a weak New Zealand dollar both pushing inflation higher.
Core Conclusion: Rates to Remain Unchanged, But Policy Thinking Quietly Shifts
The BOJ is expected to hold rates steady at its October meeting, but the decision could still mark a significant shift in its policy approach. According to Daiwa Securities' preview report, the board is expected to conclude that underlying inflation has reached 2% — a step that would mean the BOJ is moving from a phase of "pushing inflation up to target" to a phase of "keeping inflation stable near that level." In short, the BOJ may appear to be standing pat, but it is quietly moving its policy goal: from "getting inflation up" to "preventing inflation from overshooting," which keeps the possibility of a December rate hike firmly alive.
Rationale for Holding Steady: Economy and Prices in Line with Expectations, Inflation Expectations Easing
Daiwa Securities, citing media reports, said economic conditions and prices have continued to meet the BOJ's outlook since September, with policymakers seeing upside inflation risks as insufficient to justify back-to-back rate hikes. An October survey also showed that household and corporate inflation expectations had eased somewhat. Nevertheless, concerns about inflation overshooting remain high: cost pass-through is widening on the consumption side, rising crude oil prices have reignited upstream price pressures, and some within the BOJ expect the pass-through effect to accelerate next year.
Policy Shift: From "Pushing Inflation Up" to "Stabilizing Inflation"
Governor Ueda signaled the change in tone earlier this month, saying that with underlying inflation nearing 2%, the BOJ can no longer tolerate further increases and aims to stabilize it. Daiwa Securities expects the Outlook Report to replace the previous wording that "inflation is approaching 2%" with "inflation is broadly in line with the target," and noted that if the report continues to flag upside inflation risks, it would provide grounds for considering an earlier rate hike.
Board Divisions: Takata May Propose Hike Again, Tamura Seen Backing a Hold
Daiwa Securities expects board member Takata to vote against the decision and propose a rate hike, as he did in July, citing strong global demand including for AI-related products. Daiwa said board member Tamura, who has advocated raising rates every few months toward a neutral level of about 2%, is expected to support holding rates steady shortly after the September hike.
Economic and Inflation Forecast Adjustments: Growth and Core CPI Revised Up, Core-Core CPI Cut
On forecasts, Daiwa Securities expects the board to raise its fiscal 2026 growth projection to 0.8% from 0.6%, and lift fiscal 2027 core CPI to 2.5% from 2.4% to reflect higher oil prices, while slightly cutting fiscal 2026 core-core CPI to 2.4%. The report is unlikely to factor in the planned cut in the food consumption tax — Daiwa estimates that could lower core inflation by about 1.5 percentage points in fiscal 2027.
Press Conference Focus: Will Ueda's Language Point to the "Next Meeting"?
Ueda's post-meeting news conference will be key. Daiwa Securities will be watching whether he continues to describe rate decisions as being made "at each meeting" or shifts to language hinting at the "next meeting" — the latter could be read by markets as a stronger signal of a December hike. Given that the policy rate is already above the lower bound of the BOJ's estimated neutral range (roughly 1% to 2.5%), Ueda's assessment of financial conditions will also influence market expectations for the pace of further tightening.
Summary
Daiwa Securities expects the BOJ to keep rates unchanged at its October meeting but to declare that underlying inflation has reached 2%, shifting its policy focus from pushing inflation up to stabilizing it, with a December hike still on the radar. Takata may again propose a rate hike, and Ueda's language — especially whether he shifts from "each meeting" to hinting at the "next meeting" — will be key to how markets price a December move. Upside oil price risks and inflation overshoot concerns provide hawkish support, while if Ueda emphasizes a comprehensive assessment of financial conditions, that could dampen rate hike expectations and weigh on the yen. (USD/JPY daily chart, source: Yihuitong) At 8:15 Beijing time, USD/JPY was at 157.03/04.
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