Bank of Japan eyes signal underlying inflation has reached 2 percent target

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

The BOJ has recently emphasized the importance of anchoring underlying inflation around its target when deciding on future rate increases. While the bank raised rates in September, many officials prefer to wait and assess the impact of past rate hikes on domestic financial conditions before moving again this month.

Recent data, including Tokyo consumer inflation and the BOJ's quarterly 'tankan' business survey, have strengthened the BOJ's belief that underlying inflation is now close to the 2% target. However, the 'tankan' survey also showed that corporate inflation is not accelerating in a way that necessitates an immediate policy response, reducing pressure for a back-to-back rate hike this month.

Analysts note that a renewed slide in the yen could pressure the BOJ to raise rates in October, but receding prospects of a US rate increase this month have eased some of that pressure. The BOJ remains focused on preventing inflationary risks with another near-term rate hike, as underlying inflation is expected to stay around its target due to rising wholesale and consumer inflation, steady wage gains, and higher crude oil prices.