Bank of Japan Nears 2% Inflation Goal Signaling Possible December Rate Hike

The Bank of Japan (BOJ) may soon announce that underlying inflation has reached its 2% target, according to three sources familiar with the central bank's thinking. This signal could reinforce market expectations of a December interest rate hike and indicate the BOJ's willingness to continue raising rates at short intervals.

While the announcement would be largely symbolic, it would underscore the BOJ's focus on anchoring inflation around its target. Recent data, including Tokyo consumer inflation and the tankan business survey, have strengthened the BOJ's conviction that underlying inflation is now roughly at the 2% goal. However, the survey also showed corporate inflation moving sideways, reducing pressure for an immediate rate hike this month.

Sources noted that inflation expectations remain elevated but not alarmingly high, suggesting that while risks persist, they are not escalating rapidly. The BOJ raised its key rate to a 31-year high in September, with Governor Kazuo Ueda emphasizing the need to prevent inflation from overshooting the target. Analysts expect the BOJ to maintain this focus, with another rate hike possible in the near term.

The central bank is likely to highlight factors such as rising wholesale and consumer inflation, steady wage gains, and increasing crude oil prices in its upcoming quarterly report. In July, the BOJ had projected underlying inflation to reach its 2% target between October 2026 and March 2028. The report due after the October 29-30 policy meeting will provide further clarity on the BOJ's stance.