BOJ to Shift from Tolerance to Aggression on Inflation

Japan's central bank may soon shift its approach to inflation, moving from tolerance to aggressive fighting. This change is expected as early as December, according to Tsutomu Watanabe, a former BOJ official and expert on price trends.

The BOJ has been dealing with a third wave of inflation caused by the Middle East conflict, following previous waves triggered by the Ukraine war and domestic wage hikes. Consumer inflation excluding fresh food and fuel is expected to peak near 3% around March next year before slowing down towards the BOJ's 2% target.

However, Watanabe warns that underlying inflation is rising rapidly and is now close to 2%. A tight labor market and price rises are driving wage growth and inflation expectations.

The BOJ has been criticized for its slow pace of rate hikes, which some see as tolerant of price rises. Watanabe estimates that if the BOJ maintains this pace, underlying inflation could overshoot 2% by July next year, forcing a more aggressive approach to combating inflation.