Five sources familiar with the Bank of Japan's thoughts said that the bank is inclined to keep interest rates unchanged next week as decision-makers are more willing to spend more time examining overseas risks and clues about next year's salary prospects.

Any such decision will increase the likelihood of the Bank of Japan raising interest rates at its follow-up meeting in January or March next year, as there will be more information about next year's wage increases at that time.

According to sources, there is no consensus within the central bank on the final decision, and some members of the policy committee still believe that Japan has met the conditions for a rate hike in December. This decision will depend on each policy committee member's belief in the possibility of sustained wage driven price increases in Japan. If an upcoming event, such as the Federal Reserve interest rate meeting that ended a few hours before the Bank of Japan meeting, triggers another sharp drop in the yen and exacerbates inflationary pressures, then the Bank of Japan may also be inclined to take action.

But sources say that overall, many Bank of Japan decision-makers do not seem eager to pull the trigger, despite Japan's borrowing costs remaining close to zero, the risk of inflation exceeding the target is minimal. One of the sources said, "Japan has not reached the point where it needs to raise interest rates immediately." Another source said, "Due to mild inflation, Japan has the ability to spend time carefully studying various data

The Bank of Japan will hold its final policy meeting of the year on December 18-19, during which a nine member policy committee will consider whether to raise short-term interest rates from the current 0.25%.

Just over half of the economists surveyed by Reuters last month expect the Bank of Japan to raise interest rates in December. About 90% of economists predict that the Bank of Japan will raise interest rates to 0.5% by the end of March. In contrast, current market pricing shows that the likelihood of the Bank of Japan raising interest rates in December is less than 30%.

Goldman Sachs analysts believe that the Bank of Japan has not yet reached a level where it can assess its confidence in the outlook. In this situation, it is expected that the Bank of Japan will maintain the policy interest rate of 0.25% unchanged at its December meeting. If the branch manager meeting in January concludes that there is insufficient motivation for small and medium-sized enterprises to raise wages next year, the Bank of Japan may postpone the interest rate hike to March or April next year.

According to a survey, when asked about the leadership ability of Bank of Japan Governor Kazuo Ueda, slightly more than half of the respondents expressed a positive view of his ability to normalize the central bank's monetary policy after ending negative interest rates in March, while 24% were not optimistic. About 60% of the survey respondents expected the USD/JPY exchange rate to be at the level of 140 to 150 by 2025.