Bank of Japan hints at inflation near target ahead of rate decision

The Bank of Japan (BoJ) may soon signal that underlying inflation has nearly reached its 2% target, according to three sources close to the central bank. This potential announcement later this month could reinforce expectations of another interest rate hike in December, marking the BoJ’s continued shift away from its long-standing ultra-loose monetary policy.

While the move would be largely symbolic, it could strengthen market anticipation for further rate increases. Some BoJ policymakers, however, remain cautious about raising rates again this month. They prefer to gather more economic data and assess the impact of previous rate hikes on domestic financial conditions before taking further action.

Market reaction to these developments has been relatively muted, with the USD/JPY pair up 0.15% at 158.15 as of the latest reports. The BoJ’s gradual pivot from its stimulative policies reflects efforts to align with broader global trends, particularly as inflation in Japan has surpassed the 2% target due to factors like a weaker yen and rising energy costs.