The Bank of Japan is expected to keep short-term interest rates steady at 0.25% at its upcoming meeting on October 30-31, 2024. That being said, with easing fears of a US recession, the central bank may indicate a readiness to shift to a less dovish policy stance.
Since ending its decade-long quantitative easing program in March, the BOJ has signaled its intention to gradually raise rates. Yet, after market jitters followed the July rate hike, the bank has taken a more cautious approach, pledging a slow transition toward normalization.
At the conclusion of the meeting on October 31, analysts do not anticipate significant changes to the BOJ's growth and inflation forecasts. Recent data show inflation is holding steady at around 2%, which aligns with the bank’s target. However, internal reports indicate that wage growth continues to support consumption, which could lead to further price increases.
A possible factor driving a policy shift is the labor shortage expected next year. Companies may keep raising wages to attract workers, thereby sustaining demand and inflation. The Bank of Japan may convey this optimism in its report, highlighting that conditions for rate hikes are gradually taking shape.
Despite these positive developments, the BOJ remains cautious about the risks of financial market instability and global economic uncertainty.
The Bank Governor Kazuya Ueda has expressed cautious optimism about the U.S. economic outlook but emphasized the need for further analysis to assess whether the current improvements are sustainable.
The BOJ’s earlier report suggested that the central bank would continue raising rates if economic conditions were favorable. However, the market is now paying closer attention to signals of potential risks that could slow the process of monetary policy normalization. The future direction of Japan's economy, along with international conditions, will play a key role in shaping policy in the coming months.
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