Bank of Japan Signals Inflation Near 2% Target Ahead of Possible December Rate Hike

The Bank of Japan (BOJ) may soon signal that underlying inflation has reached its 2% target, according to three sources familiar with the central bank's deliberations. Such a statement, expected as early as this month, would reinforce market expectations of a rate hike in December and demonstrate the BOJ's commitment to tightening monetary policy in the coming months.

While the move would be largely symbolic, it would align with the market's anticipation of a December rate increase. The BOJ is focusing on keeping inflation anchored near its target as it considers the timing and pace of future rate hikes. However, some officials are cautious about raising rates again this month, preferring to wait for more data on the impact of recent policy adjustments.

Recent economic readings, including Tokyo consumer inflation and the BOJ's quarterly tankan corporate survey, suggest that underlying inflation is now close to the 2% target. However, the tankan survey also indicated that corporate inflation is stable rather than accelerating, reducing the urgency for an immediate rate hike. Inflation expectations remain high but are not surging rapidly, according to the sources.

The BOJ raised its key rate to a 31-year high last month, with Governor Kazuo Ueda emphasizing the need to prevent inflation from exceeding the target. Analysts note that while a weaker yen could pressure the BOJ to act again in October, the fading likelihood of a US rate hike this month has eased some of that pressure. The BOJ remains focused on addressing inflation risks through near-term rate increases.