Bank of Japan hints at reaching 2% inflation target

The Bank of Japan may announce this month that underlying inflation in the country has nearly reached the 2% target level. This could signal the central bank's readiness to raise interest rates again in the coming months, according to Channel NewsAsia, citing Reuters and three informed sources.

While such a statement would be largely symbolic, it could strengthen market expectations of a rate hike in December. The Bank of Japan is increasingly focused on ensuring that underlying inflation remains steadily near the 2% target when determining the pace and timing of further monetary policy tightening.

In September, the central bank raised its key rate to the highest level in 31 years, following a previous increase in June. However, some officials are cautious about a new decision as early as October, preferring to assess how previous steps have affected domestic financial conditions.

Recent data, including Tokyo consumer inflation figures and the quarterly tankan business sentiment survey, has bolstered the regulator’s confidence that underlying inflation is approaching the target. However, the survey showed that corporate inflation is not accelerating enough to require an immediate central bank response.

The Bank of Japan may reflect this assessment in its quarterly report, due to be released after its next monetary policy meeting on October 29-30. In its July report, the regulator had forecast that underlying inflation would reach a level consistent with the 2% target between October 2026 and March 2028.