During Friday's Asian trading session, the USD/JPY pair moved within a narrow range, hovering near 157.70 and nearly flat for the day, as market participants await direction from the Bank of Japan.
The BOJ is scheduled to announce its monetary policy decision on Friday. Similar to the Federal Reserve, financial markets are confident the BOJ will keep rates unchanged — after the central bank raised rates by 25 basis points to 1.25% at its September meeting, the highest level in 31 years for Japan. So far this year, the BOJ has implemented two 25 basis point rate hikes. Commerzbank noted in a report that the market expects "the overnight rate to remain unchanged, with none of the economists surveyed by Bloomberg anticipating a hike on Friday." This consensus has led investors to focus more on the monetary policy statement, the central bank's outlook report, and Governor Kazuo Ueda's press conference for clues on the policy outlook through year-end.
Tokyo Inflation Remains Resilient
Tokyo CPI growth continues to run well above the BOJ's 2% target, underscoring persistent price pressures. Data released on Friday showed that Tokyo's October core CPI, which excludes fresh food, rose 2.6% year-on-year, slightly slowing from 2.7% in September; the headline inflation rate came in at 2.8%, while the index excluding both fresh food and energy rose 2.6%. Government subsidies introduced in October to reduce summer electricity and city gas bills helped suppress prices, but this effect is likely to fade in the coming months, meaning Friday's data is unlikely to deter the BOJ from raising rates in the months ahead. Despite the subsidies, energy prices continued to contribute to overall price gains, with electricity and gas prices rising 1.7% and 4.9% respectively, both reversing from declines the previous month.
Hours after the data release, the BOJ will announce its rate decision, with the market expecting rates to remain unchanged this time.
Ueda's Hawkish Stance: AI Demand and Inflation Approaching Target
Ueda's remarks following the September policy meeting indicated his concern about energy-driven inflation risks. He also emphasized the importance of anchoring core inflation near the 2% target and repeatedly reaffirmed that the central bank will maintain its monetary tightening path. Ueda stressed that underlying inflation is "quite close" to 2%, with economic and price developments broadly in line with forecasts. His commitment to "continue raising rates" while financial conditions remain accommodative, along with plans to discuss whether to adjust the assessment of inflation approaching 2%, reinforced the gradual normalization bias and provided a more solid supporting backdrop for the yen. Ueda stated that there is "no major divergence" between the BOJ's view on AI-driven inflationary pressures and that of global policymakers, noting that some counterparts are more optimistic about AI demand — highlighting upside price risks and providing justification for retaining the tightening path. By explicitly linking the timing and pace of future rate hikes to exchange rates, AI demand, and Middle East developments, his remarks outlined a reaction function sensitive to data and risks, offering marginal support for the yen, particularly if AI-related demand and external shocks keep inflation near the 2% target. These comments suggest that Ueda will remain hawkish on the monetary policy outlook and continue to emphasize the importance of anchoring price pressures near the central bank's 2% target.
December Meeting Expectations: Nearly 70% of Economists Anticipate a Hike to 1.5%
According to a media survey of 78 economists conducted from October 13 to 19, 54 respondents — nearly 70% — expect the BOJ to raise its policy rate from the current 1.25% to 1.5% in the fourth quarter, nearly double the proportion in the previous survey. Among those who specified a month for the hike, about 80% chose the December meeting, with only about 2% betting on the policy meeting ending on October 30. This means the market consensus has further coalesced from "possibly one more hike before year-end" to "most likely action in December," continuing the quarterly hiking pace established after the June and September increases — whereas at the start of this tightening cycle, the BOJ was raising rates only once a year. Most analysts believe the October meeting will result in a hold, allowing assessment of the impact of the previous two rate hikes on financial conditions and the real economy. Meanwhile, yen weakness combined with rising energy and import costs is amplifying inflation pressures, and BOJ board member Junko Koeda also emphasized last week that upside inflation risks are significant and the central bank should not be overly cautious. Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, noted that if the US and Europe raise rates before year-end while the BOJ delays until the new year, yen selling could accelerate; while Takeshi Minami of the Norinchukin Research Institute cautioned that the economy has not yet overheated to the point of requiring consecutive meeting rate hikes. Looking further ahead, about 60% of respondents expect the rate to rise to 1.75% by the end of June next year, and the proportion believing the terminal rate could reach 2% or higher has also risen notably.
How Will USD/JPY React: The Decision Itself Likely a Non-Event, Tone Is Key
The BOJ's rate decision itself appears to be a "non-event" for USD/JPY, as market participants are highly confident the policy rate will remain unchanged. What truly carries influence is the tone of the BOJ's monetary policy outlook and any clues regarding the terminal rate level. If the BOJ signals a potentially faster approach to the terminal rate, it would benefit the yen; conversely, if it indicates a pursuit of a gradual tightening path, the impact on the yen would be limited. Therefore, the risk for USD/JPY tilts modestly to the downside.
Conclusion
The BOJ will most likely keep its policy rate unchanged at 1.25% on Friday, and the decision itself is unlikely to cause ripples. The real variable lies in the policy statement, the outlook report, and Ueda's press conference — nearly 70% of economists expect a December hike to 1.5%, and Ueda's previous hawkish remarks also support gradual normalization. At 8:19 Beijing time, USD/JPY was quoted at 157.73/74.
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