Bank of Japan signals inflation target may have been met

The Bank of Japan (BOJ) may announce this month that underlying inflation has hit its 2% target, according to three sources familiar with the central bank’s thinking. This symbolic move would reinforce market expectations of another rate hike in December and signal the BOJ’s readiness to continue raising rates at short intervals.

The BOJ has been emphasizing the need to keep underlying inflation close to its 2% target when deciding on future rate increases. After raising rates in September, many officials prefer to wait for more data on the impact of past rate hikes before moving again. Recent data, including Tokyo consumer inflation and the central bank’s tankan business survey, suggest underlying inflation is now roughly at the 2% target. However, the tankan survey also showed corporate inflation moving sideways, reducing pressure for an immediate rate hike.

'Inflation expectations remain elevated but not flaring up,' one source said, adding that while inflation risks persist, they are not worsening sharply. Another source noted that prices are moving in line with the BOJ’s projections, indicating underlying inflation is now close to the target. The BOJ is expected to highlight these factors in its next quarterly report after the October 29-30 policy meeting.

The BOJ raised its key rate to a 31-year high in September, with Governor Kazuo Ueda signaling a focus on preventing inflation from overshooting the 2% target. Analysts believe the central bank could raise rates again in the near term, though a slide in the yen has reduced immediate pressure for an October hike.