Higher oil prices could lift the Bank of Japan (BOJ)’s inflation outlook without prompting an immediate rate increase, four unnamed sources told Reuters ahead of its Oct. 29-30 policy meeting.
The sources expect the BOJ to leave its overnight-rate guideline around 1.25%. Their assessment could change if another decline in the yen raises import costs and feeds broader inflation, they said. They also said a further rate increase could come as soon as December.
The BOJ’s July outlook projected inflation excluding fresh food at 2.5% in fiscal 2026 and 2.4% in fiscal 2027. The Reuters sources expect only a slight increase in the fiscal 2027 projection, reflecting the effect of higher crude prices on consumer costs. The bank has not announced an October forecast or rate decision.
As covered in our earlier report on Japan’s bond yields, the BOJ voted 7-2 on Sept. 18 to raise the rate guideline from around 1.0% to around 1.25%, effective Sept. 24. It said underlying inflation was approaching its 2% target and tied further adjustments to economic activity, prices and financial conditions. Reuters described the new rate as a 31-year high.
The average of surveyed companies in the BOJ’s September Tankan expected general prices to rise 2.6% over the following year and 2.5% over five years. Both expectations were 0.1 percentage point lower than in the June survey. Those figures measure companies’ expectations, rather than current inflation.
Higher oil costs can reduce households’ real income and company profits, the BOJ said in its July outlook. The bank said a weaker yen can benefit global firms, while the resulting rise in import prices can reduce households’ real income and profits at small and medium-sized firms.
Japan’s September consumer inflation figures are due Oct. 23. The BOJ has scheduled its policy statement and The Bank’s View portion of its October outlook for Oct. 30, followed by the full Outlook Report on Nov. 2.
