Bank of Japan: A dovish but independent stance

While the current year’s growth forecasts were revised slightly higher, continued uncertainties around trade policy and wage growth were highlighted throughout the press conference. We continue to expect policy rates to remain on hold until early next year. The timing of the next rate hike is highly dependent on trends in wage growth.

Waiting for fiscal and trade clarity

The BoJ voted to leave the unsecured overnight call rate at 50 basis points (bps) at its policy meeting on October 29–30.

Two members voted for a 25 bps hike, repeating the previous meeting’s dissents. Takata Hajime considered there to be “a shift away from the deflationary norm and deemed the price stability target to have been more or less achieved.”  Tamura Naoki viewed inflation risks to be skewed to the upside requiring policy rates to “move close to neutral.”

The forecasts changed little in the economic outlook. Minor changes were made to the projections: GDP growth FY2025 was revised up 0.1pp to 0.7% y/y and core-core inflation was up 0.1ppt to 2% y/y for FY2026 (Table 1).

Source: BoJ, October 2025.

The balance of risks supported the broader dovish messaging. Risks to growth were skewed to the downside next year as the BoJ continues to see persistent trade uncertainties.

Meanwhile inflation risks were balanced, with food inflation expected to fade over time. Government policy-related inflation movements were ignored in the forecasts given the new administration are still debating policies.

A dovish but independent message

Governor Ueda’s press conference was clearly dovish. Consequently, expectations for a December move have receded further. Indeed, the point at which the market fully prices in the next rate hike has shifted from March to April following the press conference. The yen weakened against major currencies in response to Ueda’s comments.

Ueda refused to comment on recent currency weakness, however, historically the Ministry of Finance has stepped in either with a statement or explicit intervention when moves have been deemed to be too rapid.

Ueda noted uncertainties regarding the US outlook due to limited data availability from the government shutdown. External factors are considered significant for the domestic trade outlook.

The governor repeatedly stressed the importance of next year’s spring Shuntō wage talks. The BoJ is concerned about the profitability of tariff-hit sectors such as manufacturing. The trade outlook could constrain firms’ ability to raise wages sufficiently.

While recent years’ Shuntō spring wage negotiations have delivered record high wage settlements, these have taken a long time to filter into realized wage growth (Chart 1).

Nonetheless, the BoJ do not need to wait until April for final wage negotiations before acting. In the coming weeks the bank will gain early indications of wage negotiations. There should be sufficient information regarding wage trends ahead of the January meeting. This will ultimately determine the timing of the next rate hike.

The dovish tone immediately raised concerns about the bank’s independence after Prime Minister Sanae Takaichi’s election, as she favors loose fiscal and monetary policies.

However, Takaichi has softened her tone post-election and reiterated the independence of the BoJ. Ueda also made it clear during the press conference that the bank would act according to its mandate, not political pressure. Both the governor and the PM have referred to the BoJ Act which legally enshrines the bank’s independence. Over time these concerns should fade in Japan.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

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