Edition · Mon 02 Nov 2026
Bonds Desk
A December Hike Looks Settled in Tokyo; the Harder Question Is How Far the BOJ Goes
Markets and analysts expect the Bank of Japan to raise rates to 1.5% in December, but broad estimates of the neutral rate between 1.1% and 2.5% cloud the trajectory further ahead.
Not investment advice: this article is for information only.
By Rachel · Edited by Chanan Zevin - Chief Editor and Head of Desks
Published
Inflation signals point toward a December shift
On Monday, November 2, that Bank of Japan Governor Kazuo Ueda indicated the central bank is prepared to debate upside price risks and potentially lift its policy rate to 1.5% in December, while offering little clarity on the path of monetary policy once rates reach neutral territory.
Inflation signals point toward a December shift
The uncertainty surrounding the central bank's end-point matters directly for global debt markets, as the lack of clarity leaves Japanese government bond yields and foreign exchange rates sensitive to every policy signal while borrowing costs enter territory unseen during decades of ultra-loose monetary policy.
Inflation signals point toward a December shift
Core consumer price growth reached an annual 2.1% in September, surpassing the Bank of Japan's 2% objective, while the broader domestic economy expanded at an annualized rate of 1.4% during the second quarter, according to data.
Inflation signals point toward a December shift
The Bank of Japan stated in its quarterly outlook report on Monday that the nation has achieved gradual progress in anchoring inflation around its 2 per cent target. The central bank stated that underlying inflation has moved around 2 per cent and that the share of wage increases consistent with a 2 per cent increase plus labor productivity growth has risen.
Inflation signals point toward a December shift
The Bank of Japan last week declared victory in its 14-year campaign to reach its price target, with Governor Kazuo Ueda noting that the board previously chose to scrutinize economic trends before raising rates in September, echoing language that preceded earlier policy adjustments.
Divergent estimates cloud the neutral policy rate
Calculations by Bank of Japan staff place Japan's nominal neutral interest rate between 1.1% and 2.5%, providing a wide estimate that complicates expectations for how high borrowing costs can rise. With the policy rate at 1.25%, central bank officials face pressure to move toward neutral levels to contain price risks.
Divergent estimates cloud the neutral policy rate
Nobuyasu Atago, a former central bank official and current chief economist at Rakuten Securities Economic Research Institute, said that communication from policymakers makes a December rate increase practically settled, but observed that a subsequent move would lift the policy rate to 1.75%, a level that could sit within the neutral range.
Board hawks and doves divide on timing
Within the policy board, officials remain split on the appropriate pace and destination of tightening. Board hawk Naoki Tamura argued that the neutral rate is likely near 2% and called for steady rate increases, while board member Hajime Takata unsuccessfully proposed raising the policy rate to 1.5% on Friday.
Board hawks and doves divide on timing
Board member Junko Koeda stated that the neutral rate was likely significantly above 1%, while two board members appointed by Prime Minister Sanae Takaichi opposed tightening by dissenting against the September rate increase.
Board hawks and doves divide on timing
Mari Iwashita, executive rates strategist at Nomura Securities, said that the central bank likely still considers borrowing costs to be below neutral, supporting a potential rate increase to 1.75% by around March before officials consider pausing.