No change in Bank of Japan’s interest rates after the December 2026 meeting?

The market resolves Yes if the Bank of Japan leaves its short-term policy rate unchanged after the December 2026 meeting. At 0.435, the price implies a near coin-flip, even though the BoJ's baseline is gradual normalisation rather than a move at every meeting. Since exiting negative rates in 2024, the BoJ has hiked only episodically, and December meetings have historically rarely been the venue for a surprise.

Our 0.55 estimate rests on several drivers: Japanese inflation holding around or above the 2% target, but wage growth and consumption still moderate, and the yen periodically requiring support. The BoJ prefers to act at meetings with a refreshed outlook report (January, April, July, October), while December is often used to signal rather than to move. We therefore put the probability of a hold above the market price.

The market may be skewed by yen hedging and expectations that a weak yen will force the central bank to act faster. For Yes to win, the December meeting simply needs no rate change, which is the base case absent an inflation shock or a sharp yen depreciation.

Key risks: inflation accelerating above forecasts, the yen sliding toward 160+ per dollar, or hawkish BoJ commentary that makes a hike unavoidable. If wage and labour data accelerate, the probability of a hold falls and our estimate would prove too high.