Bank of Japan to Hold Rates This Week, But A Hike Is Coming With Help From The U.S., Says Mitsubishi UFG

07:57 AM EDT, 10/29/2025 (MT Newswires) -- Within 12 hours of the FOMC decision later Wednesday, the Bank of Japan will announce its policy decision and given a new government led by Prime Minister Sanae Takaichi is only just in place, the BoJ is widely expected to keep the policy rate unchanged at 0.50%, said MUFG.

The yen (JPY) initially jumped in early trading in Asia in response to a post by United States Treasury Secretary Scott Bessent, who appeared to be attempting to reinforce the statement put out on Tuesday by the U.S. Treasury following his meeting with Finance Minister

Satsuki Katayama which suggested BoJ monetary policy was a key factor in the undervalued level of the yen, stated the bank.

Katayama on Tuesday denied that was how the statement should be interpreted and it appears this post on X by Bessent was an attempt to undermine that denial, pointed out MUFG. The fact that in the post on X Bessent emphasized the need to allow the BoJ " policy space" was key MUFG believes can be seen as a further attempt to portray the U.S. view that the BoJ needs to address yen weakness via monetary tightening.

Bessent added that he was "encouraged" by Katayama's understanding that 'Abenomics' was no longer about reflation and that inflation was an issue that needed to be addressed in policy steps. This more explicit comment from Bessent will certainly act to discourage yen selling at these levels, wrote the bank in a note to clients.

The primary focus in this week's BoJ policy's decision, assuming policy remains unchanged, is whether there were any additional dissents, added MUFG. The last meeting saw two policy members vote for an immediate hike and if another member were to join in the dissent, it would fuel stronger expectations of a hike in December.

Junko Koeda is seen as one of the most likely candidates to possibly join the dissenters, according to the bank. December is currently priced at close to a 50% probability, while by January 2026 it is a 90% probability. Updated forecasts will be released and MUFG sees limited changes with core-core annual consumer price index at 2.8% this fiscal year 1.9% in FY26 and 2.0% in FY27.

Growth could be a touch stronger for the current fiscal year. MUFG expects Governor Kazuo Ueda to play down any political influence in specific BoJ decision-making but in the context of the Bessent comments, his views in the press conference on the impact of the yen on inflation will be important.

Overall, the bank expects the BoJ to repeat its key guidance that a rate hike will be required if the economy continues to evolve as expected. MUFG believes the BoJ should guide the markets toward a December hike, especially given the primary factor in delaying until now -- trade policy uncertainty -- looks to be receding further and in any case, equity markets in many parts of the world are at record highs.

In that scenario and following the rate cut from the Federal Reserve later Wednesday, downside scope in USD/JPY is certainly set to build.

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