Analysts predict that the Bank of Japan will maintain its plan to increase interest rates in December or January.

• Despite a messy election, the Bank of Japan kept its benchmark policy rate at 0.25%, as anticipated. However, analysts believe that the central bank's focus on normalizing monetary policy, which involves raising rates, remains unchanged.
• The BOJ's Outlook Report was described as "moderately hawkish" by Stefan Angrick, associate director and senior economist at Moody's Analytics. He predicted that the central bank would raise interest rates before the year ends.
• One analyst predicted December while another forecasted January.

Despite a messy election, the Bank of Japan kept its benchmark policy rate at 0.25%, as anticipated. However, analysts believe that the central bank's focus on normalizing monetary policy, which involves raising rates, remains unchanged.

The BOJ board kept its three-year inflation forecast with slight modifications, indicating that the economy is moving in accordance with its predictions.

Kazuo Ueda, the governor of the central bank, stated at a press conference that the risks surrounding the U.S. economy are decreasing, suggesting that another interest rate hike may be possible soon. As a result, the yen strengthened to 151.9 against the dollar.

The BOJ's Outlook Report has a "moderately" hawkish tone, according to Stefan Angrick, associate director and senior economist at Moody's Analytics. He explained that the central bank's projections for growth and inflation still suggest that rate hikes are imminent.

The only issue is timing, and with the yen still weakening, I predict a rate hike before the year ends. The outcome for the following year will depend on the Shunto or spring wage negotiations, as stated by Angrick.

The report on the outlook for fiscal 2025 indicated that prices may increase, likely due to concerns about a weakened yen.

On Monday, the yen fell by approximately 1% to a three-month low, following the Liberal Democratic Party's worst election loss in 15 years. On Friday morning, the yen was trading at 152.27 against the dollar.

Large Japanese firms with international operations benefit from a weaker yen, which increases the value of profits brought back from overseas. However, a softer yen also increases the cost of imported energy and food, putting pressure on households.

The BOJ's report highlighted the importance of closely monitoring global economic and market trends, emphasizing the need to closely monitor risks that could impact a delicate domestic recovery when considering the timing of policy tightening.

According to Akira Otani, senior Japan economic adviser at Goldman Sachs, the BOJ may increase rates in January. However, the timing of the next rate hike is uncertain and may be influenced by international developments, exchange rates, and their impact on the Japanese economy, Otani stated.

The next crucial aspect to monitor in domestic politics, according to Marcel Thieliant, head of Asia Pacific at Capital Economics, is the possible approval of the supplementary budget.

In the election campaign, Prime Minister Shigeru Ishiba announced that his government plans to create a larger supplementary budget for the 2024 fiscal year to fund an economic aid package. This budget will exceed the 13 trillion yen ($84.6 billion) allocated in the previous year's supplementary budget.

The budget size may increase if the administration incorporates the Democratic Party of the People's suggestions to ease the rising burden of energy cost.

An election to determine a prime minister will occur on November 11. If he maintains his position, Ishibia will form his second cabinet before traveling to Brazil for a meeting of the Group of 20.

Ishiba is expected to hold an extraordinary Diet session upon his return, with the aim of passing the supplementary budget plan, according to local news.

Thieliant stated that the Diet should convene on 11th November and typically runs until mid-December, providing enough time for them to pass the supplementary budget. Afterward, the BOJ could hike rates in the same month.

"If political problems cause a delay in the decision to raise interest rates, I would likely rule out a rate hike in December, as it would create uncertainty about the fiscal situation."