BOJ preview: Daiwa sees hold, but 2% inflation call could open door to December hike

Daiwa Securities expects the Bank of Japan to hold rates at its upcoming meeting, but flags that a revised inflation outlook projecting core price growth at or near 2% could lay the groundwork for a rate increase in December. The transmission channel runs through the yen and the rate differential: a credible path toward BOJ tightening narrows the gap with U.S. policy rates, which has historically supported the yen and weighed on dollar-yen while also pressuring Japanese exporters' earnings expectations. Japanese government bonds are most directly exposed, as a hawkish shift in forward guidance would push up the front end of the JGB curve, and Japanese equities, particularly export-heavy names, could see rotation if yen strength accelerates. Carry trades funded in yen are also sensitive, since a tighter BOJ stance raises the cost of borrowing in the currency and can trigger unwinds across higher-yielding positions. The next concrete catalyst is the BOJ's quarterly Outlook Report and the Governor's press conference following the meeting, where the wording on the inflation trajectory and any explicit timing signals will determine whether December tightening gains market traction

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