Synopsis:
Barclays acknowledges that the Bank of Japan’s (BoJ) December meeting is now “live” following surprising inflation data and Governor Ueda’s recent remarks. While maintaining a January rate hike as their base case, Barclays highlights key factors that could influence an earlier move.
Key Points:
October Inflation Surprise:
Japan’s nationwide October BoJ core CPI rose by 0.2pp to 2.3% y/y, driven by higher prices for food (excluding perishables), restaurants, and public services.Despite this, key BoJ focus areas—services inflation excluding public services and imputed rent—eased by 0.2pp to 2.0% y/y, signaling limited wage pass-through to prices.
Upcoming Data to Watch:
November Tokyo CPI will be critical to gauge whether broader price markups materialize.Additional data points such as US payrolls and the December BoJ Tankan report will shape the BoJ’s December decision.
FX and Political Context:
FX movements and the stance of Japan’s Ishiba administration will weigh heavily on the BoJ’s deliberations. The administration’s approach to monetary and fiscal policy remains a key uncertainty.
December Optionality:
Governor Ueda recently emphasized optionality for a December hike, keeping markets on edge.While Barclays holds its base case for a January hike, it now views December as a “live” meeting with a higher likelihood of action.
Conclusion:
Barclays sees a January BoJ hike as the most likely outcome but flags growing risks for a December move if inflation trends, FX dynamics, and political factors align. Governor Ueda’s recent statements underscore the BoJ’s readiness to act sooner if necessary.
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This article was written by Eamonn Sheridan at www.forexlive.com.
