Bank of Japan keeps interest at 1.25%, but leaves high in December on radar

The Bank of Japan left its policy rate unchanged at 1.25%, while signaling that a rate hike in December remains on the table. The decision keeps Japan's policy stance tighter than in prior years but still well below the level of most major central banks, sustaining a rate differential that supports yen-funded carry trades. A December move would narrow that gap and could push the yen higher against the dollar, tightening financial conditions for leveraged positions and pressuring Japanese equities, particularly exporters whose earnings benefit from a weaker currency. Traders will focus on the upcoming Tokyo CPI and national inflation prints, along with any shift in wage data from the spring labor negotiations, as these will largely determine whether the BOJ follows through in December.

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