Japan's central bank kept its benchmark rate unchanged with an 8-1 vote, and the yen largely preserved its gains, while the bank signaled that underlying inflation has reached its 2% target, effectively opening the door to a December rate hike.
The market's focus now shifts to the press conference scheduled around 3:30 p.m. local time by Bank of Japan Governor Kazuo Ueda.
In the BOJ's October 30 decision, the most surprising element was not the rate itself, but the acceleration of ETF sales. The central bank announced it would speed up the pace of ETF disposals to about 860 billion yen per year, or roughly 5.5 billion U.S. dollars, a move that broke prior market expectations and triggered sharply contrasting interpretations.
The BOJ has long held a massive ETF portfolio, a hallmark legacy of its years of accommodative policy. Previously, the central bank explicitly reassured markets that these holdings would be sold gradually over more than 100 years to avoid shaking stock prices. That stance had long served as a soothing pill for investors. Now, with the faster selling pace, that reassurance is being withdrawn.
Yet the market's reading of what this signal means has clearly diverged.
What the decision kept and changed
What remained unchanged is the rate itself, while what changed are two key signals. First, the policy statement implied that underlying inflation has reached around the 2% price stability target, pointing to further tightening. Second, the pace of ETF disposals abruptly accelerated from the soothing arrangement of "selling over more than 100 years" to about 860 billion yen per year. The former is a substantive shift in monetary policy, while the latter is an acceleration of balance sheet normalization, together forming the hawkish undertone of this decision.
Inflation "on target": paving the way for a December hike
A senior macro strategist at Lombard Odier gave the most striking characterization: the wording that inflation has reached the policy target level is effectively a declaration of victory for the reflation effort that began in 2012 and ran through the Abenomics era. This "victory declaration," combined with the assessment of upside risks to prices, has already paved the way for a resumption of rate hikes in December this year.
OCBC currency strategist Shen Maoxiong holds a similar view. He believes the decision itself contained no surprises, but the hint that the official inflation target has been achieved points to further policy tightening ahead, which should be favorable for the yen.
A strategist at a Hong Kong bank, Shogo Karitani, was relatively neutral, noting that the inflation language in the statement was basically in line with expectations and that the BOJ merely indicated underlying inflation has reached around the 2% price stability target.
Faster ETF sales: a dispute over signals
ETF disposals were the most unexpected part of the decision, and market interpretations have diverged. Shogo Karitani took the hawkish side: the acceleration in ETF sales is "unexpected," is another step toward monetary policy normalization, should be regarded as a hawkish signal, and has already prompted some modest yen buying. He added, however, that for the foreign exchange market, ETF sales are essentially more of a stock market issue.
A strategist at Shinkin Asset Management, Kazuki Sawamura, offered a more complex set of judgments. On the one hand, he worried that the previous stance of "selling over more than 100 years" had reassured investors, and that after the acceleration, investors may come to expect that "the more stocks rise, the faster the selling will be." Such a self-reinforcing feedback loop could, over time, cap market upside. On the other hand, he coolly calculated that the selling scale is about 10 billion yen per day, while average daily turnover on the Tokyo Stock Exchange's main board is about 10 trillion yen. The disposals amount to only about 0.1%, so the actual supply-demand impact is limited.
Yen direction: anchored range and external disturbances
On the yen's outlook, Homin Lee was the most explicit. He expects Ueda to express a clearer hawkish bias at the afternoon press conference to anchor market expectations for the December policy meeting and to reduce unnecessary complications relative to FX intervention. He believes the assumption of quarterly rate hikes by the BOJ should be enough to anchor the yen against the dollar in the 155 to 160 range, especially since upside room for USD/JPY is constrained by the threat of credible market intervention.
Shen Maoxiong flagged disturbances from external variables: oil prices are complicating the near-term outlook for USD/JPY, and the risk of another escalation in U.S.-Iran tensions after the U.S. midterm elections has pushed oil prices higher, which may prevent USD/JPY from fully benefiting from the backdrop of dollar weakness caused by artificial intelligence concerns.
Karitani brought the focus back to the immediate issue: ETF sales are mainly a stock market matter, and for the foreign exchange market, attention should turn to Governor Ueda's press conference for clues on the future direction of monetary policy.
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