The Bank of Japan may pause its rate hike pace this month, with the next move this year still likely to land in December.

On October 13, according to people familiar with the matter cited by Bloomberg, BOJ officials see no need for consecutive rate hikes given that upside inflation risks have not yet clearly intensified. Officials will assess whether another rate hike is necessary in December based on the latest economic data. However, the people familiar with the matter stressed that the central bank has not made a final decision and did not rule out the possibility of a policy adjustment at this month's meeting.

Market pricing shows traders estimate the probability of a BOJ rate hike this month at about 10%, while the probability of a hike by December has risen to 88%. Among economists surveyed by Bloomberg last month, about one-third expected the BOJ to raise rates in December, while more than half expected the hike to be delayed until January next year.

As rate hike expectations cool, the yen continues to face pressure. As of press time, the U.S. dollar stood at 158.13 yen, higher than around 155.8 before the BOJ announced its rate hike on September 18, with the yen still unable to reverse its weakness after the hike.

Inflation Nears Target, BOJ Still Needs to Assess Timing of Rate Hike

The policy committee led by BOJ Governor Kazuo Ueda raised the benchmark rate to 1.25% last month, the central bank's second rate hike in three months and its fastest pace of tightening since 1990.

The BOJ has never raised rates for two consecutive months since 1980. According to the report citing people familiar with the matter, Japan's economy and inflation trends are broadly in line with the central bank's expectations, and underlying inflation is already close to the 2% target, but the central bank still needs to confirm whether inflation can remain sustainably and stably around that level.

The BOJ will hold its next policy meeting on October 30 and release its latest quarterly economic outlook. At that time, officials will assess the impact of rising oil prices on inflation and whether a temporary cut in the food sales tax will change inflation forecasts, in order to judge the timing of subsequent rate hikes.