The Bank of Japan is widely expected to keep its benchmark interest rate unchanged at the conclusion of its two-day policy meeting on Friday. Market attention will pivot to Governor Kazuo Ueda's post-meeting press conference, where investors will look for any hints that the next rate hike could arrive sooner than many economists currently forecast.

All 52 economists surveyed by a media outlet predict the central bank will leave the rate at 1%—the highest level in 31 years—to assess the impact of last month's hike. This decision shifts the market's focus to the BOJ's updated economic projections and Ueda's afternoon press conference.

The meeting comes amid growing conviction that authorities may raise rates again by the end of October. The yen's depreciation to its lowest level against the U.S. dollar since 1986 is intensifying inflationary pressures, as Japan imports nearly all of its energy and more than half of its food.

A key area of focus: inflationary risks

Investors will closely monitor any indication from officials that they see upside risks to inflation accelerating. Meanwhile, the Japanese economy is proving more resilient than policymakers feared just a few months ago, providing the BOJ's policy board with room to continue normalizing monetary policy.

Earlier this month, sources familiar with the matter revealed that some BOJ officials believe core inflation is finally very close to the 2% target set over 13 years ago. Against this backdrop, the central bank's policymakers are open to raising rates more frequently than the roughly once-every-six-months pace most economists expect, depending on the inflation outlook.

Market expectations diverge sharply

Currently, about half of the surveyed economists expect the BOJ to wait until December for its next move, while roughly 40% predict action in October. Traders are more aggressive. As of 5 p.m. in Tokyo on Wednesday, overnight index swaps indicated roughly a 74% probability of a rate hike by the end of October, up from about 50% the day after the June policy meeting.

Sources indicate that board members may discuss raising the economic growth forecast for the current fiscal year in the latest quarterly projections. In contrast, economists surveyed by a media outlet estimate the BOJ's median inflation forecast will be slightly downgraded.

Governor Ueda missed last month's policy meeting due to hospitalization for a liver cyst infection. The BOJ typically releases its policy decision and quarterly outlook report around noon Tokyo time, with Ueda's press conference scheduled to begin at 3:30 p.m. local time.