Bank of Japan Nears 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 would reinforce market expectations of a December interest rate hike and indicate the BOJ's readiness to continue raising rates at short intervals.

Sources suggest that recent data, including Tokyo consumer inflation and the tankan business survey, have strengthened the BOJ's confidence that underlying inflation is now around its target. However, the tankan survey also showed that corporate inflation is not accelerating in a way that would require an immediate policy response, easing pressure for a back-to-back rate hike this month.

While inflation expectations remain elevated, they are not flaring up sharply, according to one source. Another source noted that prices are moving in line with the BOJ's projections, suggesting that underlying inflation is roughly at the target level. 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.

The BOJ is likely to highlight factors such as steady wage gains, rising wholesale and consumer inflation, and increased crude oil prices in its upcoming quarterly report. These factors are expected to support underlying inflation moving durably around the 2% target. The central bank's focus remains on managing inflationary risks with further rate hikes in the near term.