The Bank of Japan (BOJ) has achieved its long-standing goal of lifting inflation to near 2%, but policymakers warn that their work is far from over. Governor Kazuo Ueda emphasized the need to anchor inflation around the 2% target amid risks of high energy costs spreading to other sectors. The BOJ left its policy interest rate unchanged at 1.25% on Friday but indicated that further rate hikes are likely, with the next move expected to raise the rate to 1.5% in December.
The BOJ's quarterly Outlook Report reiterated its commitment to raising interest rates gradually, adjusting monetary accommodation in response to economic developments. Governor Ueda described the achievement of the 2% inflation target as a 'milestone' but stressed that sustaining this rate in a stable manner remains a priority. The bank's six rate hikes since March 2024 have been conducted in accommodative financial conditions, but future hikes will focus on tightening to manage upside inflation risks.
Economic data for the third quarter suggests a nearly flat GDP growth, with consumer spending dampened by bad weather and rising costs. Household spending is expected to post its 10th straight year-on-year drop in September, reflecting consumer caution amid higher living expenses. The BOJ will continue to monitor the cumulative effects of rate hikes, particularly on small businesses, as it considers further adjustments to monetary policy.
Looking ahead, the BOJ will assess data meeting by meeting, deciding whether to hold, raise, or ease rates based on economic conditions. Governor Ueda is scheduled to deliver a speech at the International Monetary Fund's 2026 Michel Camdessus Central Banking Lecture in Washington D.C. on Saturday, providing further insights into the bank's policy direction.