BOJ says inflation nears 2%, December hike stays live

Bank of Japan Governor Kazuo Ueda said underlying inflation is approaching 2% on Tuesday, keeping a December rate increase in market focus. Immediate Japanese government bond reaction was not available; market pricing showed roughly a 64% chance of another hike by December, compared with no firm commitment for the October meeting.

Ueda said the economy and prices are moving in line with the central bank’s baseline forecasts. He also said financial conditions remain accommodative even after the September rate increase, a formulation that leaves room for additional tightening if the bank judges inflation’s path as durable.

December pricing stays elevated

The policy signal matters for rates because the BOJ is still separating direction from timing. Officials have indicated they will keep raising the policy rate in line with economic, price and financial developments, while deciding the pace of adjustments against the likelihood that baseline projections are realized and the risks around them.

An October outlook that formally recognizes underlying inflation at the 2% target would be more symbolic than an automatic trigger. If it holds, the mechanism is straightforward: short-end Japanese yields would have more room to price a December increase, the yen would receive rate-differential support, and global bond markets would face another source of upward pressure from Japan.

If officials instead keep the October language cautious, the BOJ can preserve optionality without moving at back-to-back meetings. The forward call is by December 31, 2026: the market will test whether the 64% pricing clears into an actual increase or gets pushed into 2027.