Bank of Japan Eyes 2% Inflation Target Amid Rate Hike Speculation

The Bank of Japan (BOJ) is considering signaling this month that underlying inflation has reached its 2% target, according to sources familiar with its thinking. This move, while largely symbolic, would reinforce expectations of another interest rate hike in December and indicate the BOJ's readiness to continue raising rates at short intervals.

Recent data, including Tokyo consumer inflation and the BOJ's quarterly tankan business survey, have strengthened the central bank's conviction that underlying inflation is now around its target. However, the tankan survey also showed that corporate inflation is moving sideways, reducing the urgency for an immediate policy response.

Sources noted that inflation expectations remain elevated but not alarmingly high, suggesting that while inflation risks persist, they are not escalating rapidly. Overall, prices are aligning with the BOJ's projections, indicating that underlying inflation has roughly hit the 2% target.

The BOJ raised its key rate to a 31-year high in September, marking its second hike this year. Governor Kazuo Ueda emphasized that the central bank is focused on preventing underlying inflation from overshooting its target. While a weaker yen could pressure the BOJ to hike rates again in October, receding prospects of a US rate increase this month have eased some of that pressure.