Bank of Japan set to confirm 2% inflation target in October outlook

The Bank of Japan (BOJ) is preparing to announce that its preferred measure of underlying inflation has hit the 2% target in its upcoming Outlook Report, scheduled for discussion at the October 29-30 Monetary Policy Meeting. This assessment comes as Japanese companies continue to pass on higher costs to consumers, bringing the 2% price target within reach.

Despite reaching the 2% threshold, the BOJ plans to keep raising interest rates at short intervals to ensure inflation remains anchored at this level. However, some within the central bank advocate caution, particularly about another rate hike in October following the September increase. The BOJ’s decision will depend on assessing the economic impact of recent rate hikes and monitoring market developments leading up to the meeting.

The BOJ evaluates underlying inflation using core consumer price indicators and medium- to long-term inflation expectations. While the September meeting statement projected the 2% target would be met from late 2026 through 2027, some policy board members, including Hajime Takata and Naoki Tamura, argue it has already been achieved. Governor Kazuo Ueda also noted that inflation is "roughly hitting" the target.

Wage growth remains strong at around 3% year-on-year, supporting the view that underlying inflation has reached 2%. However, the BOJ remains cautious about temporary factors affecting the Consumer Price Index (CPI), which stood at 1.7% year-on-year in August due to government gasoline subsidies. The central bank will focus on whether underlying inflation remains stable around 2% before confirming the target has been met.