Bank of Japan officials stated that domestic cost-driven price increases are gradually transmitting from the corporate side to the end-consumer sector, further elevating inflation risks, and financial markets have sharply raised their expectations for another BOJ rate hike in December.

BOJ branch managers said on the 8th that cost-push inflation has already spread from B2B corporate transactions to industries facing ordinary consumers, with inflationary pressures continuously expanding nationwide. In a related statement, the central bank analyzed that, influenced by the dual factors of Middle East geopolitical conflicts and a weak yen, energy and raw material prices have risen, compounded by higher transportation and labor costs, prompting a large number of companies to take the lead in raising product quotations to corporate clients in order to absorb cost pressures.

At present, cost pass-through behavior has already spread to retail consumer businesses, with more and more merchants raising end-user prices to offset input costs while observing household consumption confidence. However, household spending remains cautious, and some companies, in order to avoid losing customers, are proactively limiting the scale of price increases while expanding low-priced product lines to maintain market share.

On the same day, the BOJ released its quarterly regional economic report, upgrading its economic assessment for 2 of 9 regions while maintaining its original judgment for the remaining 7 regions. The report concluded that although local economies in Japan have some weak spots in certain areas, the overall recovery trend continues. The BOJ already raised its policy rate to 1.25% last month, and in the face of persistently rising inflation, the market widely expects the central bank to tighten policy again soon.

Pricing in the overnight index swap market shows that the probability of a BOJ rate hike in December has already exceeded 80%. BOJ Governor Kazuo Ueda also signaled a hawkish stance earlier this week, warning that underlying inflation risks breaking above the 2% policy target and reiterating that the monetary tightening path will continue. The BOJ's next policy board meeting is scheduled for October 29-30, and the market will focus on the guidance on subsequent rate adjustments released at that meeting.