TD Securities expects the Bank of Japan to raise its policy rate again in December, with inflation at target and labour market tightening driving the outlook.

TD Securities analyst Prashant Newnaha says the Bank of Japan (BoJ) will probably continue its pattern of raising the policy rate roughly every quarter, with the next hike slated for December. The central bank now judges inflation to be at its 2% target and is shifting its focus from merely hitting the goal to avoiding an overshoot, while still describing financial conditions as accommodative.

Why the BoJ may keep tightening

• Labour market conditions have tightened beyond what the output gap alone can explain, raising expectations for a higher neutral or terminal rate.
• FX movements and rising wage pressures add upside risk to inflation, reinforcing the BoJ’s hawkish stance.
• AI‑related demand could boost price pressures, although a slowdown in AI spending would temper growth and price expectations, potentially lowering the terminal‑rate forecast.

Market reaction

• The yen stayed resilient, trading below 157.50 against the dollar as the BoJ left policy unchanged at its October meeting but signalled more hikes.
• Gold slipped below the $4,000 psychological level, pressured by expectations of a December Fed hike and a stronger dollar.
• AUD/USD nudged higher toward 0.7035 after hotter Australian CPI data revived RBA rate‑hike expectations.

What traders are watching

• Whether the BoJ confirms a December hike in its upcoming meeting minutes.
• Further data on AI spending and wage growth that could reshape the terminal‑rate outlook.
• US inflation and employment reports that may influence the Fed’s own rate path and, by extension, yen dynamics.

Related news

• BoJ holds rates steady as gold slips below $4,000
• France's Q3 GDP contracts, adding pressure on ECB policy
• Gold falls near $4,000 as US PCE data boosts December Fed hike odds
• BoJ holds rates as inflation hits 2% target for first time since 2013

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This article is compiled from international market news for information only. It is not investment advice.