The Bank of Japan keeping interest rates unchanged on Friday has become consensus, with the market closely watching for signals of a rate hike in October.

The Bank of Japan is expected to keep its benchmark interest rate unchanged at its policy meeting on Friday, prompting market participants to continue looking for clues about the bank's potential rate adjustments in the next month or in December. Fifty economists surveyed by Bloomberg all indicated that borrowing costs will remain unchanged at 0.5% when the Bank of Japan's two-day meeting concludes. This meeting comes shortly after the Federal Reserve announced its first rate cut since last December and indicated two more cuts later this year. The Bank of Japan is expected to raise interest rates in January next year. The backdrop of this meeting is a variety of constantly changing factors that may force Governor Haruhiko Kuroda and his team to hold off on further action until further analysis. Apart from the long-awaited expectations of the Fed restarting its easing cycle, Japan's domestic politics has also been in turmoil following Prime Minister Shinzo Abe's announcement of resignation. Additionally, there are also global trade issues. Sources earlier stated that Japanese authorities still need to evaluate the potential impact of U.S. tariffs domestically and internationally. However, as speculation about rate hikes continues to brew, observers of the Bank of Japan will closely analyze any signals from Kuroda during the post-meeting press conference. Sources say Japanese authorities believe it is possible to hike rates again before the end of the year. Recent data shows that despite manufacturers being impacted by U.S. tariffs, the Japanese economy is still moderately recovering, which pushed the Nikkei 225 stock index to a historic high on Tuesday. For over three years, household costs in Japan have been at or above the Bank of Japan's 2% target level, a trend that may continue after the data is released on Friday. The data is expected to show that although price growth slowed in August, it still significantly exceeds the Bank of Japan's target. Since the Bank of Japan has repeatedly stated it intends to hike rates if its economic outlook materializes, about 36% of analysts in the survey believe the Bank of Japan may hike rates in October. Nearly nine out of ten analysts expect a rate hike before January. Economist Taro Kimura said: "The Bank of Japan needs to reduce stimulus measures as real interest rates are heavily negative, the inflation rate is above the target level, and there is stable wage growth to support it. But the next step may have to wait until October. For now, the turbulent political situation will likely keep the Bank of Japan on hold." On the same week as the Bank of Japan's nine-member committee meeting, several of Prime Minister Abe's Liberal Democratic Party colleagues officially announced their intention to participate in the party leadership election scheduled for October 4. A political figure expected to join the race as a frontrunner in the coming days could influence external views on the Bank of Japan's interest rate trajectory. Sanae Takaichi strongly warned against hiking rates during last year's party leadership election. In the political realm, Kuroda may promise to continue monitoring the government's policies on the economy and inflation while avoiding commenting on any specific candidate or their policy agenda. The policy statement is typically released around midday, and Kuroda will hold a press conference at 3:30 pm.