BoJ Expected To Keep Rates Steady Amid Political Upheaval
Bank of Japan HQ
- Policy Board look for more evidence on the economy - Political situation complicates rate setters' task - Trade uncertainties to weigh on domestic activity - October hike still a potential outcome - analysts
Just like its G7 peers, the Bank of Japan is navigating political turmoil and tariff uncertainty while attempting to fulfil its monetary policy mandate.
At the conclusion of its two-day meeting, the central bank is widely expected to leave its benchmark rate unchanged at 0.50%.
Uncertainty remains over whether Governor Kazuo Ueda will tee up an October hike. Some members of the policy board have argued for waiting until the release of the Tankan, the quarterly business sentiment survey, before making a judgment.
The board is divided between those favouring a gradual normalisation of rates and those reluctant to move, warning that medium- to long-term inflation expectations are not yet firmly anchored. Ueda himself has said there is no preset timeline for the next hike and that decisions will be data-driven.
Economic backdrop
In July’s Outlook for Economic Activity and Prices, the bank said growth was likely to moderate as trade and other policies weighed on activity, though “accommodative financial conditions” should offer some support.
It projected CPI, excluding fresh food, in the 2.5–3.0% range for fiscal 2025, 1.5–2.0% in 2026, and around 2% in 2027.
The report flagged multiple risks: “It remains highly uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan’s economic activity and prices.”
Political uncertainty
On 7 September, Prime Minister Shigeru Ishiba announced his resignation, deepening the sense of instability for policymakers. HSBC noted that much depends on his successor.
“Leading candidates include former Economic Security Minister Sanae Takaichi, a strident advocate of more dovish monetary and fiscal policies, and Agriculture Minister Shinjiro Koizumi, who has adopted a more balanced economic stance,” the bank said. “If former-PM Ishiba, who supported monetary policy normalisation, is replaced by a pro-easing candidate, the BoJ would likely face more criticism for raising rates.”
Market implications
Jane Foley, senior FX strategist at Rabobank, added that while Japanese politics is multifaceted, one factor stands out for the yen: the relationship between the new LDP leader and the BoJ, particularly whether the incoming leadership seeks to exert pressure on monetary policy.
“The overhanging political uncertainty may now make it tough for the BoJ to provide clear signals, raising the chances of steady rates through to the end of the year,” she said.
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- Policy Board look for more evidence on the economy
- Political situation complicates rate setters' task
- Trade uncertainties to weigh on domestic activity
- October hike still a potential outcome - analysts
- Rate decision due between 03:00-05:00 GMT
- Press conference set for 06:30 GMT/ 15:30 JST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
18 September 2025 | 10:00 GMT
Just like its G7 peers, the Bank of Japan is navigating political turmoil and tariff uncertainty while attempting to fulfil its monetary policy mandate.
At the conclusion of its two-day meeting, the central bank is widely expected to leave its benchmark rate unchanged at 0.50%.
Uncertainty remains over whether Governor Kazuo Ueda will tee up an October hike. Some members of the policy board have argued for waiting until the release of the Tankan, the quarterly business sentiment survey, before making a judgment.
The board is divided between those favouring a gradual normalisation of rates and those reluctant to move, warning that medium- to long-term inflation expectations are not yet firmly anchored. Ueda himself has said there is no preset timeline for the next hike and that decisions will be data-driven.
In July’s Outlook for Economic Activity and Prices, the bank said growth was likely to moderate as trade and other policies weighed on activity, though “accommodative financial conditions” should offer some support.
It projected CPI, excluding fresh food, in the 2.5–3.0% range for fiscal 2025, 1.5–2.0% in 2026, and around 2% in 2027.
The report flagged multiple risks: “It remains highly uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan’s economic activity and prices.”
On 7 September, Prime Minister Shigeru Ishiba announced his resignation, deepening the sense of instability for policymakers. HSBC noted that much depends on his successor.
“Leading candidates include former Economic Security Minister Sanae Takaichi, a strident advocate of more dovish monetary and fiscal policies, and Agriculture Minister Shinjiro Koizumi, who has adopted a more balanced economic stance,” the bank said. “If former-PM Ishiba, who supported monetary policy normalisation, is replaced by a pro-easing candidate, the BoJ would likely face more criticism for raising rates.”
Jane Foley, senior FX strategist at Rabobank, added that while Japanese politics is multifaceted, one factor stands out for the yen: the relationship between the new LDP leader and the BoJ, particularly whether the incoming leadership seeks to exert pressure on monetary policy.
“The overhanging political uncertainty may now make it tough for the BoJ to provide clear signals, raising the chances of steady rates through to the end of the year,” she said.