Bank of Japan poised to confirm inflation target hit soon

The Bank of Japan (BOJ) is considering signaling this month that underlying inflation has reached its 2 percent target, according to three sources familiar with its thinking. This move would reinforce market expectations of a December rate hike and indicate the BOJ's readiness to continue raising rates at short intervals.

Recent data, including Tokyo consumer inflation and the central bank's quarterly 'tankan' business survey, have strengthened the BOJ's belief that underlying inflation is now close to the target. However, the tankan survey also showed corporate inflation moving sideways, reducing pressure for an immediate policy response.

While the BOJ raised its key rate to a 31-year high in September, many within the central bank prefer to wait and assess the impact of past rate increases before taking further action. Analysts note that a renewed slide in the yen could increase pressure for an October rate hike, but receding prospects of a US rate increase this month have eased some of that pressure.

The BOJ is likely to highlight factors such as steady wage gains and rising crude oil prices in its upcoming quarterly report, reinforcing the view that underlying inflation has hit the 2 percent target. In the July report, the BOJ had projected underlying inflation to reach this level sometime between October and March 2028.