As Takemoto Sanao's appointment approaches, the Bank of Japan may delay its interest rate hike schedule

Market expectations for the Bank of Japan's interest rate hike at the policy meeting on October 30 have significantly cooled. Bank of Japan officials stated that there is no urgency to raise rates next week, even if the economy makes progress towards achieving price targets.

According to media reports, Bank of Japan officials believe that the economy and inflation are generally in line with expected developments, and the likelihood of achieving the outlook continues to rise slowly. While the possibility of another rate hike this year cannot be ruled out, there are currently no decisive factors prompting them to raise the benchmark interest rate at next week's policy meeting.

This stance echoes the monetary easing advocacy of the incoming Prime Minister, Sanae Takaichi. Takaichi is known for her support of monetary easing policies, and after being elected as the president of the Liberal Democratic Party, the yen weakened and the stock market rose, reflecting market expectations for stimulus policies and the central bank delaying interest rate hikes.

External Uncertainties Remain

According to informed sources, Bank of Japan officials believe that the impact of U.S. tariffs has not yet fully manifested in the data. The uncertainty surrounding U.S. economic developments and their impact on the Japanese economy remains high. These external factors provide the Bank of Japan with reasons to delay interest rate hikes.

In the context of Sanae Takaichi's assumption of the prime ministership, central bank officials are cautious about the necessity of immediate action.

The central bank will closely monitor developments in the financial markets, particularly fluctuations in the yen exchange rate. Officials stated that financial market dynamics will be an important consideration, as the current impact of the yen on inflation is more significant than in the past.

Compared to the past, the yen's fluctuations now have a more direct impact on inflation, making the exchange rate an important consideration in policy decision-making. Officials will continue to assess all relevant data before the policy meeting to provide a basis for the final decision.

The Probability of a Rate Hike This Month is About 25%

According to CCTV News, on October 21, in the first round of voting for the House of Representatives' prime ministerial nomination, Liberal Democratic Party president Sanae Takaichi won and was elected as Japan's new prime minister.

Currently, the market has strong expectations that the new government led by Sanae Takaichi will maintain an expansionary fiscal policy.

Regarding the new prime minister, the Bank of Japan stated that it will continue to work closely with the government, but its decisions will fully depend on how progress towards achieving price stability targets is assessed. Informed sources indicated that some officials pointed out that a preliminary assessment of the economic and fiscal policies that the new government may adopt could lead to a decision to raise rates.

Many central bank observers believe that the central bank does not want to take action too quickly after Sanae Takaichi takes office to avoid repeating the historical conflicts with the government over interest rate hikes.

In his last public speech before the decision-making, Governor Kazuo Ueda seemed to avoid triggering a new round of speculation, merely reiterating the central bank's policy stance. This contrasts with his clear hints of impending changes before the rate hike in January.

Traders currently estimate the probability of a rate hike this month to be about 25%, a slight increase this week but still far below the approximately 70% expectation at the end of last month. According to overnight swap index pricing, the probability of a rate hike at the December meeting is about 38%