Synopsis:

Barclays acknowledges that the Bank of Japan's (BoJ) December meeting is now "live" following surprising inflation data and Governor Ueda's recent remarks. While maintaining a January rate hike as their base case, Barclays highlights key factors that could influence an earlier move.

Key Points:

• October Inflation Surprise:

  • Japan's nationwide October BoJ core CPI rose by 0.2pp to 2.3% y/y, driven by higher prices for food (excluding perishables), restaurants, and public services.
  • Despite this, key BoJ focus areas—services inflation excluding public services and imputed rent—eased by 0.2pp to 2.0% y/y, signaling limited wage pass-through to prices.

• Upcoming Data to Watch:

  • November Tokyo CPI will be critical to gauge whether broader price markups materialize.
  • Additional data points such as US payrolls and the December BoJ Tankan report will shape the BoJ's December decision.

• FX and Political Context:

  • FX movements and the stance of Japan’s Ishiba administration will weigh heavily on the BoJ's deliberations. The administration's approach to monetary and fiscal policy remains a key uncertainty.

• December Optionality:

  • Governor Ueda recently emphasized optionality for a December hike, keeping markets on edge.
  • While Barclays holds its base case for a January hike, it now views December as a "live" meeting with a higher likelihood of action.

Conclusion:

Barclays sees a January BoJ hike as the most likely outcome but flags growing risks for a December move if inflation trends, FX dynamics, and political factors align. Governor Ueda's recent statements underscore the BoJ's readiness to act sooner if necessary.