The Bank of Japan (BoJ) may soon indicate that underlying inflation is approaching its 2% target, according to three sources familiar with the central bank’s thinking, which could reinforce expectations for a rate hike in the coming months [1][3]. After raising rates in September, some BoJ policymakers remain cautious about another increase this month, preferring to assess additional economic data and the effects of previous hikes before making further moves [1][3]. This potential signaling is seen as largely symbolic but could strengthen market expectations for a rate increase in December [3].
Recent inflation data from Japan surprised to the upside, with headline Tokyo CPI accelerating to 2.7% year-over-year in September, above the 2.5% consensus and up from 1.9% in August. Core Tokyo CPI, excluding fresh food and energy, rose markedly to 3.0% year-over-year, surpassing the 2.5% consensus and 2.0% in August, marking its highest reading under the Takaichi administration [1]. Analysts at MUFG/BTMU judge that these readings should keep the BoJ attentive to inflation and the need for policy tightening [1].
Market reactions have been notable: the USD/JPY pair is up 0.15% on the day at 158.15 [3], while the AUD/JPY cross trades in positive territory near 110.20, though technical analysis suggests a bearish bias persists as the pair remains below key moving averages [1]. The EUR/JPY cross halted its seven-day losing streak, trading around 177.40, but remains in a corrective phase with a bearish tone as it holds beneath both the nine- and 50-period EMAs. The 14-day RSI at 29.78 is in oversold territory, indicating strong downside pressure but potentially more measured selling ahead [2].
Elsewhere, the US Dollar Index (DXY) trades 0.1% higher near 102.20, supported by firm US bond yields, with 10-Year US Treasury Yields up 0.24% to near 5.32%, close to a two-decade high [4]. The selling pressure in US bonds persists despite softer Nonfarm Payrolls data for September, as inflation remains the primary concern for the Federal Reserve’s policy outlook [4]. Societe Generale’s Kenneth Broux notes that the softer payrolls report has reinforced a pullback in expectations for near-term Fed tightening, but inflation continues to drive policy decisions [4].
On the Australian front, money markets are betting the Reserve Bank of Australia (RBA) will likely raise rates at its November policy meeting, though the probability of a rate hike has fallen to around 20%, according to LSEG data [1].
CONCLUSION
The Bank of Japan’s potential signaling on inflation and rate hikes is keeping markets alert, with currency pairs like USD/JPY and AUD/JPY showing movement amid global yield shifts. While inflation data supports a tightening bias, policymakers remain cautious, preferring to assess further economic conditions. Overall, the market impact is medium, as investors await more concrete policy signals from central banks.