The Bank of Japan will meet on Thursday night for its penultimate monetary policy meeting this year, Commerzbank's FX analyst Volkmar Baur notes.

BoJ rate hike seen more likely in December

"The market and various analysts had long speculated that the BoJ could raise interest rates again in October, but the consensus has now shifted in our direction. We have long assumed that December is more likely for a 25 basis point hike in the key interest rate to 0.75%. The election of the new prime minister is still too recent and it is unclear what measures she plans to take and how these might affect inflation."

"For the moment, however, the new Prime Minister Sanae Takaichi seems to have passed her first test. The visit by US President Donald Trump went smoothly, and Takaichi appeared to have a better personal relationship with Trump than her predecessor Ishiba. The US remains Japan's most important trading and security partner, so an easing of tensions in this bilateral relationship could be an important positive factor for the Japanese economy."

"Looking at the expected further development of inflation over the coming months, we assume that the overall rate will continue to fall, but that we will not trend toward deflation again. This continues to give the BoJ room to act cautiously and raise interest rates only slowly. As mentioned, we do not expect any interest rate move tomorrow morning. However, it is quite possible that a move in December will be verbally prepared, which could support the JPY."