-           Board expected to raise target rate to 0.75%

-            Ueda to leave door open to further hikes

-            Market focused on terminal rate guidance

-            Announcement due between 0330-0500 GMT

-            Press conference set for 0630 GMT

By Harry Daniels

LiveSquawk News

@HarryDaniels71

17 December 2025 | 18:00 GMT

The BoJ’s Policy Board is widely expected to raise its target rate by 25 basis points to 0.75% on Friday.

Comments from Governor Kazuo Ueda reinforced market conviction. Speaking to business leaders in Nagoya on 1 December, Ueda said the contraction seen in Q3 was temporary and that the economy would “return to positive growth” thereafter.

On inflation, he noted that sizeable positive contributions from rice and other food items largely reflected temporary cost-push factors.

Turning to monetary policy, Ueda said the Bank recognised that real interest rates remained at “significantly low levels”, well below the level neutral to economic activity and prices. “In other words, even if the policy interest rate is raised, accommodative financial conditions will be maintained,” he said.

Masamichi Adachi, economist at UBS, said Ueda had successfully signalled an imminent rate hike, with markets absorbing the message smoothly. “We do not think a rate hike at this meeting, per se, will have a material impact on markets as it is already priced in,” he said.

Instead, Adachi argued that communication around policy normalisation beyond Friday would matter more than the decision itself. “More specifically, the terminal rate and the pace of hikes should be the focus at the press conference after the policy decision,” he added.

The quarterly Tankan Survey showed an improvement in business sentiment in Q4. The all-industry diffusion index rose to 17, its highest level since early 2018 and two points above September’s reading.

Business conditions improved modestly among large manufacturers, while remaining broadly stable or easing slightly across other categories.

“While high-frequency monthly sentiment indicators for both large corporates and smaller firms have been edging higher, the Tankan suggests firms are becoming increasingly confident about the outlook,” said JP Morgan’s Benjamin Shatil.

On inflation, the survey pointed to moderate increases in output and general prices over the one-, three- and five-year horizons.

“Corporate inflation expectations remained anchored above the BoJ’s 2% target, unchanged at 2.4% y/y across all time horizons in this quarter’s survey,” UBS’s Adachi noted. “Firms’ expectations of continued labour-market tightness point to ongoing price pressures. Combined with the resilience in corporate sentiment seen in the Tankan, this should feed positively into the BoJ’s assessment of economic conditions at this week’s meeting.”

With a December rate rise all but assured, investors will be looking for guidance from Ueda on the likely speed of the tightening cycle.

“We do not expect Governor Ueda to signal whether the pace of rate hikes will be faster or slower next year, as the central bank continues to stress that decisions are taken on a meeting-by-meeting basis,” Adachi cautioned.

However, Abhijit Surya of Capital Economics argued that acute labour shortages reported by firms should reassure policymakers that the virtuous cycle of rising wages and prices will remain intact.

Making the case for a more forceful normalisation path, he added: “While it is all but certain that the Bank will raise its policy rate by 25bp this Friday, we are growing increasingly confident in our above-consensus terminal rate forecast of 1.75% in 2027.”