Speculation about an intervention came as the Bank of Japan signaled a softer inflation outlook in the first half of 2026. Cooling inflation could ease pressures on households and boost consumer spending.
However, a weaker Japanese yen could push import prices higher, countering any cooling effects of inflation on domestic demand.
The BoJ could potentially address yen weakness by signaling further rate hikes and raising interest rates in December. Previous interventions to bolster the yen have been short-lived, suggesting a BoJ policy adjustment would have a more lasting effect.
Hotter Tokyo inflation in October supported a more hawkish BoJ rate path. The annual inflation rate rose from 2.5% in September to 2.8%, while the so-called ‘core-core’ inflation rate jumped from 2.5% in September to 2.8% in October. The Tokyo inflation data pointed to short-term price pressures, contrasting with the BoJ’s softer medium-term outlook.
The USD/JPY pair reacted modestly to the data, with a softer Japanese inflation outlook and less dovish Fed policy stance leaving the pair range-bound.
However, rising import prices may pressure the BoJ to raise rates despite concerns over US tariffs potentially weighing on wages and household disposable incomes. It could pose a dual challenge for the BoJ if import prices soar and wage growth slows further as producers grapple with tariff-induced margin squeezes.
