This week is shaping up as a "super central bank week" — the United States, Japan, and Europe will hold monetary policy meetings in quick succession, with the most closely watched event being the Federal Reserve's Federal Open Market Committee (FOMC) decision and policy statement due at 2 a.m. Beijing time on Thursday. According to a consensus among Wall Street fixed-income strategists, all three major central banks may hold rates steady this week, but the real question for markets is: after the pause, how far will tightening still go. The Fed will announce its decision on October 28 U.S. local time, while the European Central Bank and the Bank of Japan will follow on the 29th and 30th respectively. The mainstream expectation is that the Fed will keep the federal funds target range at 3.75%–4.00%, the ECB will maintain its deposit facility rate at 2.50%, and the Bank of Japan will hold its policy rate at 1.25%. All three face energy-driven inflation and financial market volatility, yet none has clearly signaled an end to rate hikes.
CNBC economist survey data reveals that the Bank of Japan may deliver a classic "hawkish hold" at this meeting: all 16 surveyed economists expect the BOJ to leave monetary policy unchanged this week, and all expect BOJ officials to lay the groundwork and manage expectations for a rate hike path in December or January next year; 13 of them expect the BOJ's terminal rate to reach 1.75%–2% around mid-2027. This means market discussion has shifted from whether to normalize further to the speed and endpoint of rate hikes. What will determine the BOJ's future monetary policy direction is whether the source of inflation shows sustained changes. Japan's September core inflation, excluding fresh food, rose to 2.1% year-on-year, while August real wages grew 1.5% year-on-year, marking an eighth consecutive month of gains. Imported energy costs and yen depreciation are pushing up costs, while wage growth could reinforce inflation persistence through consumer demand and service prices. If the BOJ changes its assessment of the latest trend in underlying inflation from "approaching 2%" to "reaching 2%," the policy case for further rate hikes would strengthen; this pause mainly reflects BOJ Governor Kazuo Ueda and other policymakers' desire to observe policy transmission and bond market resilience.
CNBC Economist Survey: BOJ Expected to Hold Rates This Week but Maintain Hawkish Stance
According to a CNBC survey, the Bank of Japan is expected to keep its policy rate unchanged at 1.25% at the two-day meeting ending Friday, but the likelihood of a rate hike in coming months remains high. Given that the BOJ just raised rates last month to a 31-year high, all 16 respondents expect the central bank to stand pat this time. All respondents said that with domestic inflation and wages continuing to rise, they expect the BOJ to lay the groundwork for a rate hike in December this year or January next year. Homin Lee, senior macro strategist at Swiss bank Lombard Odier, said macroeconomic factors support further BOJ tightening. He added: "But given the fragility of the domestic bond market, the policy board may not yet have sufficient consensus for consecutive rate hikes." Sosuke Nakamura, senior economist at Citigroup Research, said he has not yet seen clear signs that inflation is accelerating enough to support consecutive rate hikes. Japan's September core inflation, excluding fresh food, rose 2.1% year-on-year, reaching its highest level this year. A weak yen is pushing up import costs, and higher energy costs are feeding through to prices, even though government subsidies have borne part of the energy price pressure for consumers. According to the latest government data, Japan's inflation-adjusted wages rose 1.5% year-on-year in August, the eighth consecutive month of growth, also signaling that wage growth may drive inflation. According to reports, Japanese Finance Minister Satsuki Katayama told lawmakers last week that Japan "is on the threshold of shifting to a period of sustained inflation driven by rising wages," while acknowledging that higher import costs are also pushing up prices. According to a compilation of economist expectations by Reuters and The Japan Times, they unanimously expect the BOJ to announce at this meeting that its 2% "underlying inflation" target has been achieved. Ryutaro Kimura, senior fixed-income strategist at BNP Paribas Asset Management, said he is watching whether the BOJ will change its inflation language in this week's monetary policy statement from "underlying CPI inflation has been approaching 2%" to "has reached 2%."
As for the yen, nine respondents expect the USD/JPY pair to trade in the 157–158 range over the next month. Forecasts for the yen three months out were more dispersed, ranging from 150 to 160. Masahiko Loo, senior fixed-income strategist at State Street Investment Management, said: "BOJ policy normalization, higher domestic yields, and changes in institutional fund flows should gradually narrow the interest rate differential and drive capital back to Japan." But he added: "Elevated U.S. yields will prevent the yen from rising in a straight line." Last week, a selloff in popular AI computing-themed stocks and the tech sector triggered safe-haven demand, strengthening the yen against the dollar and pushing down Japanese government bond yields. This reversed the trend from earlier this month, when Japanese Prime Minister Sanae Takaichi's spending plans and a global bond selloff weighed on the yen and JGBs. Nine respondents said they expect the benchmark 10-year JGB yield to reach 3%–3.1% by year-end, up from the current 2.809%. Seven respondents expect the 30-year JGB yield to rise from Tuesday's 3.829% to 4%–4.1%. This forecast comes against the backdrop of analysts expecting the BOJ to resume tightening after a temporary pause in October. Takuji Aida, chief Japan economist at Credit Agricole, said the next rate hike may come in January, when the BOJ plans to release its quarterly outlook report assessing economic activity and prices. Thirteen respondents said they expect the terminal rate — the level at which the BOJ is expected to end this tightening cycle — to reach 1.75%–2% around mid-2027. Masato Koike, senior economist at SOMPO Institute Plus, said macroeconomic data show the policy rate is approaching the neutral level of 2%, which is also the BOJ's inflation target. But he said: "Given Japan's economic conditions and the need to avoid excessive downward pressure on growth, I expect the BOJ to stop raising rates when they reach about 1.75%." CNBC conducted this survey on BOJ rate hike expectations between October 14 and 26 among the 16 senior economists and fixed-income strategists mentioned above.
Goldman Sachs Draws Policy Boundary: Further Tightening of Financial Conditions Does Not Mean the Rate Hike Task Is Complete
The latest assessment from Wall Street giant Goldman Sachs shows that the Fed's pause in October and another hike in December reflect a slower pace, not a shift to easing. Goldman strategists said their Financial Conditions Index (FCI) has tightened by about 30 basis points since September; Goldman believes the overall tightening is only slightly more than what is typically associated with one rate hike, and not enough for the FOMC to view it as a substitute for further rate increases. The 30 basis points here represent a change in a composite financial conditions indicator and cannot be directly treated as a 30 basis point increase in the policy rate. But Goldman also does not endorse the most hawkish path of continuous consecutive hikes. It expects tariffs, energy shocks, and AI-related price pressures to gradually diminish, so the baseline scenario does not include another rate hike in March 2027, and there is still room for rate cuts in the future; if inflation is stronger than forecast, especially if the Iran conflict keeps oil prices persistently above its assumptions, further rate hikes could re-enter the baseline judgment. Goldman's latest stance on Fed monetary policy can be summarized as: a recent pause is not enough to declare tightening over, and current inflation is not enough to prove that rate hikes must continue indefinitely. This makes the trading focus for stocks, bonds, and currencies this week center on changes in the policy path relative to existing pricing. If the three major central banks reinforce signals of further rate hikes, short-end yields are more likely to rise, and valuations of long-duration growth stocks and new financing for AI projects will continue to face pressure; if the inflation outlook improves and the number of future rate hikes is revised down, it would help ease discount rate pressure. For Japan's financial markets, where safe-haven value has recently become prominent, higher domestic yields may enhance the appeal of local bonds and support some capital repatriation, but U.S. Treasury yields are also elevated, so the yen may not necessarily appreciate one-way as a result. In the CNBC survey, one-month USD/JPY forecasts clustered around 157–158, while three-month forecasts were dispersed between 150 and 160, precisely reflecting this uncertainty over relative interest rates and capital flows.
Comments