According to Jinshi Data, improving economic conditions in Japan and fading concerns about a U.S. recession are likely to bring the prospect of a rate hike in December or January back into view.

Sources and analysts see a growing economic case for the Bank of Japan to raise rates further and strengthen its hawkish messaging. While the BOJ is expected to keep interest rates unchanged at its Oct. 30-31 meeting, it will broadly maintain its forecast for inflation to remain around its 2% target until March 2027, three sources said.

Nobuyasu Atago, a former Bank of Japan official, said the central bank is unlikely to wait until March next year to raise interest rates again. Atago said recent developments surrounding the U.S. economy, including the reduction in the risk of a severe recession, will favor further rate hikes by the Bank of Japan. From this perspective, the likelihood of a near-term rate hike is increasing.

Sources said many central bank policymakers believe the economy is expected to recover moderately, with rising wages supporting consumption and helping to sustain broad-based price increases, a prerequisite for further rate hikes.