Bank of Japan left its policies unchanged, and adjustments to its quarterly forecast have no likely policy implications. The removal of the phrase "time to mull" was done by Ueda so as to not to add further depreciating pressure on JPY. In addition it gives them policy flexibility given massive uncertainty both locally & outside Japan. We believe that the BoJ will not hike rates in December unless a cheap Yen becomes a political nightmare for the administration. The Bank’s FY25 forecast for the y-y change in the core CPI was lowered, reflecting a decline in prices for crude oil and other commodities, but at the same time the report states that “risks to prices are skewed to the upside for fiscal 2025”. We believe that BoJ was and is serious about gradual normalization but is unable to make a clear choice because of local government formation issues as well as US elections. By the December meeting, if the Yen goes on depreciating AND the administration wants the BoJ to stem it, the BoJ will likely hike rates. But that is not our base case. Our base case is now for a hike in March meeting after seeing the Shunto wage negotiation results. On USDJPY, short term range is 149.85-154.85 till end CY24. But if there is a complete Red sweep in US elections, USDJPY is vulnerable for a break above 155 towards 160. That might in turn trigger BOJ to start talking hawkish as well as a low probability hike in it's Dec meeting.
